5 tips for getting your freelancer finances sorted for tax time
With Bec from Straight Up Bookkeeping
With EOFY just around the corner, we reached out to Bec at Straight Up Bookkeeping to get her expert tips for getting your freelancer finances sorted for tax time.
From how COVID could impact your taxes, to whether it’s time to jump on the Xero bandwagon, Bec’s got you covered with these great tips.
1. Learn what’s different about this EOFY due to COVID-19
This is a unique EOFY for all business owners due to COVID-19 initiatives such as JobKeeper, the Cash Flow Stimulus, the 150K instant asset write-off and being able to claim higher home office expenses than ever before. Arm yourself with knowledge regarding how these initiatives apply to you and should be accounted for in your financials and for tax time.
JobKeeper and Cash Flow Stimulus payments need to be included in your assessable income for the year, with no GST applied.
You can claim 80c/hr for every hour worked from home between 1 March and 30 June. This covers all working from home expenses including phone, internet, computer consumables and stationery. Alternatively, you can claim the usual 52c/hr for utilities and depreciation on home office equipment for the full financial year, provided you have a dedicated work space at home. You can then claim the business usage % of your phone + internet and other business expenses separately. Do the calculations to work out which method or mix of methods is most beneficial for you.
If you purchased an asset for less than $150k during the year and it’s installed and ready for use by 30 June, then you’re entitled to write-off the purchase amount rather than depreciating it. This will reduce your taxable income this financial year and result in less tax. Note that the car limit write-off amount caps at $57,581.
2. Check your records and don’t miss out on any of your tax deductions
Even if you have a business bank account and good business records, it’s worth checking your personal bank transactions to see if you’ve missed any expenses that you might be able to claim.
Follow these guidelines when considering what to claim as a tax deduction: 1) you must have spent the money and not have received reimbursement; 2) it must relate directly to earning your income; and 3) you must have a record to prove it.
3. Have your receipts ready and store them for five years
In order to claim a business expense as a tax deduction you need to be in possession of an invoice/receipt for the claim. A bank statement will not suffice. And if you’re claiming GST credits, then you need a tax invoice if the expense is above $82.50.
A tax invoice is a proof of purchase document that states “tax invoice”, has the purchase date, supplier’s details, supplier’s ABN, item description and GST amount on it. For goods/services over $1k it will need to reference the buyer’s ABN too.
Make sure you keep these documents for five years, ideally in an electronic format so they don’t fade.
4. Get your logbooks and diaries in order
When claiming deductions for expenses that have a business and personal component such as motor vehicle, home-office, phone and internet expenses, the ATO requires you to keep records to support your claims.
Car expense deductions require you to keep a logbook with odometer readings under the Logbook Method (allowing you to claim the business percentage of all your motor vehicle expenses) or travel diary under the Cents per Kilometre Method (which gives you 68c/km to cover all motor vehicle costs if you do work-related travel up to 5,000 km per year).
Phone and internet deductions require you to prove how you came up with the business versus personal use percentage. If you watch Netflix via your home internet and take personal photos on your phone, then be sure not to claim 100% business use.
Working from home expense deductions require you to keep a diary for a four-week period to show your usual pattern of working from home.
5. Reflect on how you can be more organised next year
If you have accounting software and keep your bookkeeping up to date during the year, then tax time is just another day. At any time of the year you should be able to quote your business financial position and know your tax situation. If this isn’t you, then next financial year might be the time to up-level your bookkeeping game by jumping on the Xero bandwagon.
Please talk to your tax accountant for specific tax advice.
About the author: Bec
Hi, I’m Bec. I’m passionate about a lot of things but helping small creative businesses like yours achieve strong financial outcomes is on the top of my list.
After 15 years working as a chartered accountant for big firms and banks, I established Straight Up Bookkeeping. I’d been running a side hustle helping entrepreneurs grow their wedding and baby expo business. Their creativity and success were inspiring. It was enough to convince me that Xero bookkeeping for creatives was what I wanted to do full time.
Fast-forward a few years and my own start-up business has grown. At Straight Up Bookkeeping, every single one of our on-shore Xero-certified bookkeepers is a true reflection of our brand and values. We make it OUR business to be truly invested in the success of YOUR business.