Oh lordy, it’s that time of year again. The tax man is on your back and you’re elbow deep in receipts. Until now you were lovingly looked after in your full-time role, where tax time was just a walk in the company-issued group certificate park. But for the last year you’ve been working full-time as a freelancer. You’re your own boss and it’s likely your income isn’t being taxed. Suddenly the long-neglected left side of your brain enters Bernard Black meltdown mode, like that time you tried a Crossfit class after a very long winter on the couch. Don’t worry, you’re not alone. Here are a few tax-time tips to help you figure out your freelancing finances.
1. Find a good accountant
Did you know there are people who get as excited about words like “tax” and “finance” as designers do about “kerning” and “paper stock”? Kooky! The really great thing about filing your tax return is that you can pay someone else to do it for you.
Accountants are wonderful and finding a good one is important. Not only will they help you to claim every possible deduction you can to minimise your tax bill, but they make sure you’re working under the most suitable structure for your professional situation – from sole trader, to partnership, company or trust. They’ll answer any questions you have, help you to wade through that sea of financial form jargon and just generally calm those panic stations and give you peace of mind. Also, if you use an accountant, the ATO automatically extends the deadline for you to lodge and pay your tax returns, which can help to take the pressure off.
And the best bit? You can claim the accountant fee as a tax deduction the following year. Cha-ching.
2. Put money aside when you receive payments
The boy scouts had it covered – be prepared. The easiest way to avoid that tax bill sting is to chip away at it before it happens. The premise is simple – every time you receive payment from a client, put away a percentage of that cash into a separate account. That way, when the harsh reality of having to give money to the ATO hits, it doesn’t hit quite so hard and you’re not left scrambling for dollars you don’t have.
But how much should you be putting away? Well, everyone will be different. It depends on your income. But luckily for you, there are online tools available to calculate your predicted tax bill. For example, based on that calculator, if your annual taxable income looks like it’s going to be around $45k, you should put away roughly $128.00 a week to sit safely at tax time. If you’re earning $65k per year, you’re looking at closer to $267.00 a week. Or, to be super safe, just put away a third of everything you earn and you may even end up with a nice bit of leftover cash. A self-administered tax return.
If you’re still lost and it’s looking as though your taxable income will be changing significantly in the next financial year, make sure you have a chat to your accountant.
3. Know what you can claim
Claiming tax deductions is the extreme sports of accounting. Hold onto your receipts, we’re going in. A quick explainer of how it works: anything you claim as a tax deduction comes off your total taxable income. The lower your income, the less you’re taxed, reducing your overall tax bill. There is probably a huge number of things you might not even know you can claim. Here are some things to keep in mind:
- Home office expenses
If you spend time working from home, you can claim anything that goes towards your home office. That fancy ergonomic spinny chair you bought? Claim it. That set of pens and notebooks you were sure you needed to buy before you could knuckle down and get anything done? Claim it. Any and all stationery/furniture/desktop computers that contribute to your at-home office can be claimed. Bonus: you may even be able to claim a portion of your rent, electricity, gas and Internet bills. Ask your accountant.
- Self-education expenses
Studying part-time while you work? If your study is directly related to the work you’re doing, you may be able to claim course fees, travel fees (like Myki top-ups), textbooks, stationery and student union fees. Another great reason to keep learning.
- Professional development
This is the big one and where being in the creative industry is a huge bonus. There is a lot you can claim as professional development and research. Magazine subscriptions, books, apps, conference tickets, concert tickets, flights to other cities to go to aforementioned conferences/concerts, movies, Netflix, Spotify, your phone bill… if it’s contributing to your professional practice then keep a record of it to discuss with your accountant.
4. Pay yourself superannuation
One day you’re going to be old and grey and not want to work anymore. Superannuation is important. It’s your future pension and, if you’re freelancing, it’s likely no one’s contributing to it for you anymore. This one often gets put on the backburner in the early days of freelancing because, well, when you’re already taking tax out of your payments, it’s hard to bring yourself to put away even more of those precious dollar billz. The thing is, the earlier you do it, the sooner the compounding effect kicks in – growing your super faster and giving you a bigger swimming pool of cash to swim in when you’re an OG granny.
Most people who have worked for multiple employers have a bunch of super accounts floating around with different providers (GUILTY) and each of these providers are charging fees. That’s why it’s important to choose one super fund and roll all of those loose accounts into one. Then have a chat to your accountant, work out how much you should be contributing based on your income, and start looking out for future you*.
*This is our company tagline if we ever get Sex, Drugs & Retirement Homes off the ground.
Image by Symon McVilly