Working as a freelancer is a dream for many people. You can work the hours that fit your lifestyle, take holidays when you feel like it, and spend your working day in PJs. What’s not to like about that? Unfortunately, you also have to take control of your finances, and that includes taxes.
Tax-time can be tough for freelancers. There is nothing worse than struggling with a tax return right before the tax deadline. For many freelancers, tax-time is the worst time of the year. But it doesn’t have to be a nightmare! There are plenty of things you can do to mitigate the stress and make sure you’re ready to submit your online tax return in plenty of time.
Maintain a Separate Business Bank Account
Freelancers often make the mistake of running business transactions through their personal bank account. They assume it won’t matter as there are not many transactions and surely it won’t be a problem, right?
Wrong. Not only will it make it much harder to figure out what’s what when you come to lodge your tax return, but you could also be in a pickle if the tax office decides to audit your accounts. Imagine explaining that a large cash deposit came from a friend, not a business customer. You can bet your life that the tax office will argue that it’s a business receipt and, therefore, taxable income. Good luck with that one!
Save Money for Your Tax Bill
Not saving money towards your tax bill is a huge mistake. If the tax office asks you to make tax payments after you have lodged your tax return, you need to have the money ready. If you don’t pay your tax bill on time, you will be hit with penalties. These soon add up!
Set up a separate tax account and channel money into it each month. This ring fences your tax savings and ensures you don’t accidentally blow them on a crazy weekend in Bali. If your business is registered in Australia, check your monthly or quarterly ATO statement to see what you owe.
Keep All Business-Related Receipts
A list of tax-deductible items is available from the tax office. You can also check with your accountant. However, remember that you can’t claim for things you don’t have a receipt for, so be methodical about saving receipts and invoices. If your accounting software has a receipt scan facility, use it. That way, if you lose a receipt, at least you have a scanned copy.
Keep all receipts, even if you are not 100% sure the item is tax deductible. That way you won’t miss out.
Spread Your Tax Payments
Don’t forget that Australians can spread their tax payments over the year if they earn more than $4,000 a year, but you must have an Australia Business Number. If you don’t have one, register on the Australian Business Register website.
Lastly, consider taking out income protection insurance to cover you in case you can’t work for any length of time. It’s better to be safe than sorry!