Going it alone? Make sure you don’t miss out on any tax deductions for freelancers
So you’ve made the break from your grumpy boss and skipped out of the office with your pot plant under your arm and your favourite stapler in your pocket. The first thing we’ll say is “Congratualtions!” It takes guts to step into the world of Freelancing full time. Alternatively, if like many would be freelancers, you have simply started doing a ‘bit on the side’, this blog explaining myriad tax deductions for freelancers is going to be a great help at tax time.
So let’s start with a few basics.
Home office expenses
As a freelancer, it’s likely that some, if not all of your work will be carried out at home. That may just be some admin, emails and a few phone calls. Often though, for many designers, editors, writers or consultants, your home is your place of work. The good news is; whether you work at home full time or not, you can usually claim some of the costs of a home office.
Home office expenses are broken into two types.
- Occupancy expenses
- Running expenses
To learn more about which type of home office expenses you can include on your tax return, plus how and when you claim these costs, please read our blog: Claim your Home Office expenses and increase your tax refund
Tools and equipment
If you need to purchase tools and equipment to do your job, such as a camera, computer, power tools or machinery, the costs can be claimed either straight away or over time.
- You may be able to claim tools and equipment needed for your work up to $1000 in your annual tax return. (Eg. Stationery, a new phone, a camera lens, a socket set)
- You should claim depreciation on tools and equipment costing more than $1000 (Up until June 30 2018 you can claim an instant write off on business asset purchases up to $20,000)
You may be able to claim the costs of purchase, cleaning and repair of work related protective items such as:
- Steel capped boots or non slip shoes
- Hard hats
- Hi-vis vests
- Sunglasses and sunscreen (if you work outdoors)
- Goggles or visors
Car and travel expenses
You may be able to claim freelancer tax deductions for car and travel expenses related to your freelance work.
- Car expenses for work related personal car use (except to and from your usual place of work)
- Taxi fares
- Accommodation if you need to stay away from home (for example: if you are setting up some software that required
Other tax deductions for freelancers include
- Superannuation contributions
- Mobile phone usage
Tax deductions for freelancers defined as earning Personal Service Income
If more than 50% of the income you earn from freelancing is from your knowledge, expertise, skills or labour then the ATO will define your freelance income as Personal Services Income (PSI).
This applies to most freelance work and means there are a few other items you might be eligible to claim.
Examples of additional tax deductions for freelancers who earn PSI include:
- Advertising and quoting expenses
- Industry license and registration fees
- Banking and accounting fees
- Relevant insurance and liability fees
The need to keep receipts is imperative. This tip applies to any expense incurred while freelancing – from large expenses down to parking and coffee for meetings and even stationery. If you incur an expense that is directly connected to working as a freelancer, you can usually claim it – as long as it is purely for your business.
Keep separate bank accounts – including one for tax
This will make your life easier! Although freelancers are self-employed, by keeping your personal bank accounts different from your freelancing/professional income, you can easily see how much freelance revenue you earn, how much money you have for business expenses/bills and most importantly how profitable your freelancing activities are.
Take advantage of software
Use accounting software to keep track of incoming expenses and bills along with outgoing invoices. These processes will keep things organised and structured to ensure you’re on top of incoming and outgoing money.
Don’t forget Tax and GST
If you’ve just started freelancing, you might need to arrange quarterly pay-as-you-go payments to the ATO for your tax bill. Don’t get caught out come tax time with not having enough money to cover your tax bill and don’t forget that until you pay tax on your freelance income, that money isn’t all yours. You’ll also need to register for GST if your income from freelancing exceeds $75,000 a year.
Freelancing can be a rewarding experience for anyone who wants to be their own boss, though with it comes a greater responsibility to know the tax deductions for freelancers and the basic obligations to meet.
Talk to a professional
Talking to a professional tax agent like Etax Accountants, not only about tax deductions for freelancers, but also your reporting obligations to the ATO will help take the worry out of tax and also ensure you get it right the first time around. A simple motto when freelancing: “If you’re not sure, ask!”
Download a Tax Checklist for Freelancers
To help jog your memory and collect all the right documents and details for tax time, we’ve created a helpful tax checklist that’s personalised for freelancers.
Have a question or concern, give us a call on 1300 693 829 or email the team on [email protected].