Keeping your affairs in order when you work for yourself
Running a business or freelancing from home means you need to be fully across how to manage your financial affairs. Keeping a close watch on all things money related is key to your success.
Taking charge of your business means also taking charge of your income tax. If you neglect to set aside money for taxes, you will likely be hit with a hefty bill from the Australian Tax Office (ATO). As you become more established in your self-employment, the ATO may also require you to make quarterly pay-as-you-go (PAYG) tax payments. To be prepared, best practice is to prioritise tax right from the start.
With this in mind, it’s a good idea to open a separate bank account specifically for your tax money. As for how much to set aside, a good rule of thumb is 20 to 35 per cent of your income, depending on whether you’re invoicing for Goods and Services Tax (GST).
The ATO website is an excellent source of additional information, with pages dedicated to taxes and superannuation for the self-employed. You may also want to book an appointment with an accountant to discuss your individual situation.
When it comes to superannuation, if you’re a sole trader, as most freelancers are, it’s not compulsory for you to make super guarantee (SG) payments. However, if you want to save for your retirement, it’s wise to continue to make personal contributions to super. Currently, employers contribute super of 9.5 per cent of their employees’ ordinary time earnings (OTE); in keeping with this practice, you might want to consider contributing the same to your own super.
What can I claim?
As a self-employed professional, you may be able to claim tax deductions for both equipment and running costs. Generally, you can’t claim deductions for occupancy expenses, such as rent, mortgage interest, council rates and home insurance. But among the items you can claim are computers and software, phones, printers and other electronic devices, office furniture and storage, hand tools and power tools (if you use them for work purposes), heating and cooling, calculators, professional books and stationery. You can also claim the costs of repairs and insurance for these tools and equipment.
However, there are some parameters you need to keep in mind. If you employ certain items for both work and personal use, you need to separate the professional from the personal and claim only the work portion. For example, if you use your mobile phone for work-related calls 50 per cent of the time, you can claim a deduction for 50 per cent of the cost.
Clearly, then, it’s vital that you’re diligent in your record keeping throughout the fiscal year. Basically, keep records of everything – a financial diary, phone bills, bank statements, receipts – to show how you apportioned your deductions.