Denis Cummins

Tax Tips for Freelancers and Self-Employed Individuals

freelance tax australia

Tax time at the end of the financial year (EOFY) can be overwhelming for freelancers and self-employed individuals, especially for first-timers. But don’t fret because we’re here to guide you. Here are some tips on freelance tax in Australia to help you prepare, stay organised and keep more of your hard-earned income.

Claim What You’re Entitled To

One of the significant advantages of being self-employed is the ability to claim a wide range of tax deductions. Here are some common deductions to consider:

  • Home Office Expenses

If you work from home, you may be eligible to claim a portion of your occupancy expenses (e.g., rent, mortgage interest, insurance, and property taxes) and running expenses (e.g., electricity, gas, and internet). The Australian Taxation Office (ATO) provides different methods for calculating these deductions; choose the one that best suits your circumstances.

  • Equipment Expenses

As a freelancer, you likely invest in tools and equipment essential for your work. These expenses can be deducted, including computers, software, cameras, and other specialised equipment. You can claim the full cost upfront or depreciate the assets over their effective life through the Temporary Full Expensing (TSE) measure. 

  • Travel Expenses

If your freelance work involves travel, you can claim expenses, such as car expenses (excluding commuting), parking, tolls, taxi fares, and flights. Keep detailed records of this type of expense, including the purpose, date, and distance travelled.

  • Professional Development and Training Costs

If you’re a freelancer asking about your tax in Australia, be aware of this deduction. Expenses related to professional development, courses, seminars, and training directly relevant to your freelance work can also be claimed as tax deductions.

  • Insurance Premiums

Do you pay premiums for insurance policies related to your work as a self-employed individual or freelancer? Premiums paid for professional indemnity & income protection insurance and other relevant insurance policies can be claimed as self-employment tax deductions.

  • Superannuation Contributions

Being your own boss means you don’t have an employer to pay a super guarantee on your behalf. So make sure to contribute to your superannuation fund when you’re self-employed or a freelancer to ensure your retirement plans won’t be derailed. Plus, those regular super contributions can be deducted from your taxable income. 

Understand Personal Services Income (PSI) Rules

Are more than 50% of your income from your knowledge, expertise, labour or skills? It may be classified as Personal Services Income (PSI), which can impact the additional tax deductions you can claim. According to ATO, those who earn PSI may be eligible to claim deductions on industry licence & registration fees, advertising expenses, relevant insurance and liability fees, and banking & accounting fees.

Say you are a freelance book cover designer, and 80% of your income comes from design work. Under PSI rules, you may claim deductions closely related to that work, such as service quoting expenses, advertising fees, and professional association fees. \

self employment tax

Plan for Quarterly Tax Payments

The ATO issues a business activity statement (BAS) monthly, quarterly or annually to businesses with an ABN and have registered for GST. As a freelancer, you may need to make quarterly tax payments and lodge your BAS on those periods. So, it’s best to set money aside regularly. Properly estimating and setting aside funds for these quarterly payments on freelance or self-employed taxes can help avoid penalties.

Consider Income Splitting

Do you have a spouse or partner? Consult a tax accountant to explore income-splitting strategies. For instance, shifting income to the lower-income earner can potentially reduce your overall tax liability as a freelancer. Taxation for freelancers might be nuanced, but that can work to your advantage. So, don’t skip talking to an accountant or professional tax agent to explore all your options. 

Keep Receipts & Detailed Financial Records

Maintain meticulous records of all your income & expenses related to your freelance work. This will help you identify and claim all eligible tax deductions, lowering your taxable income. The ATO also requires you to maintain records for at least five years, so it’s essential to have a reliable system to organise & store your receipts. Consider using accounting software or apps to digitise your records and make tax time easier.

Which receipts to keep? All expenses related to your work. If you’re in doubt about a certain receipt, the best way to go about it is to keep it. Besides, your accountant or tax agent could only claim deductions on expenses you have receipts for.

Separate Bank Accounts

Maintaining separate bank accounts for your business and personal finances is highly recommended. This practice helps you keep accurate records while demonstrating to the ATO that you’re running a legitimate freelancing business. It can also simplify calculating your taxable income and deductible expenses.

Stay Up-to-Date on Freelance Tax Laws

Tax laws and regulations can change frequently. Stay informed about any updates or changes that may impact your tax situation as a freelancer.

Seek Professional Advice

Tax laws and regulations can be complex, especially for freelancers and self-employed individuals. Seeking advice from a tax professional or accountant can help ensure you maximise your deductions and comply with all relevant laws.

Contact Dennis Cummins if you need help navigating freelancing tax in Australia. Our team is here to help you prepare to make the next tax season simpler & easier.

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