Tax Time Prep for Freelancers

Money /
Freelancer tax guide

Being a freelancer has many benefits, including flexibility in when you work, how you work, and who you work with. But there is one downside to going at it alone – managing your own tax and financial admin. 

With the financial year coming to a close and another on the horizon, our friends at Hnry have put together this useful freelancer tax guide to get sorted for tax time and set-up for the new financial year ahead. 

More than just income tax

Managing your tax obligations is the most frustrating aspect of being a freelancer. Most people get into freelancing because they’re passionate about their craft – writing, graphic design, photography – NOT because they want to master the art of accounting.

At Hnry, we see patterns in the mistakes freelancers make. The most common mistakes include not knowing their rough tax rate, not setting enough money aside for tax, and using tax money for personal expenses or non-emergency spending.

Knowing your approximate tax rate is the first and most important part of managing your taxes. To calculate your tax rate, you need to start by estimating how much you’ll earn in that tax year. For a lot of freelancers, income uncertainty can make this a real challenge, but even if you can only estimate to the nearest $10,000, that still gives you a rough tax rate that you can work towards throughout the year as you set aside tax money.

Once you have that estimate of your annual earnings, you can use a tax calculator to figure out your tax rate. Using this calculator, you’ll notice it’s not just calculating your income tax – it also includes:

  • Medicare
  • GST (if you’re above the GST threshold)
  • Any HECS/HELP or other education repayments
  • And additionally voluntary Super contributions

When deducting and setting aside tax money, it’s important to set aside money for all of the above (if they’re applicable to you). Some freelancers simply aren’t aware that they need to be registered for (and deduct) GST, or need to make Medicare and Student loan payments to be square with the ATO.

Need a hand getting started? Check out our 5-step beginner’s guide to freelancing.

Saving for your future 

When it comes to saving for your future, freelancers are solely responsible for building their own retirement portfolio – which means having a savings plan in place is extremely important to make sure you’re sorted for your future.

Contributing to your super is one great way to save for your retirement as it also offers a tax deduction. Under the ATO’s concessional contribution, your super contributions – up to a limit of $27,500 a year – come out of your income before tax and are then taxed separately at just 15%. If your top rate of tax is more than 15%, then concessional contributions is a great way to lower your tax rate. 

There is also another initiative to help low-middle range income earners to help them increase their contributions called Superannuation co-contribution, as long as you meet the eligibility criteria. Depending on your annual income, if you put $1000 into your Super the Australian government will match your contributions up to a maximum of $500 for free – which they pay directly to your super scheme. It’s also worth mentioning, if you make personal contributions as an income tax deduction you won’t be eligible for the co-contribution scheme. 

For more on superannuation, check out our 7-steps to supercharging your super.

Claiming business expenses

As you run your business you may accumulate expenses that you can claim back. This helps by reducing the amount of tax you’ll have to pay at the end of the year. If you have a Tax agent or an accountant they will know what can and can’t be claimed. It’s also important to keep your receipts aside in a safe place or to log your expenses using online software. This way when 1 July comes around you’ll know exactly what you need to claim back when you lodge your tax return. 

As part of the major ATO rules, you will also need to keep all expense receipts for five years, if you are ever required to do an audit. 

Claiming back on expenses has two benefits. Firstly it helps reduce your taxable income and secondly it also effectively lowers your tax rate. Play around with our tax rate calculator here to see how much claiming expenses can impact your tax rate.

Keeping track of key dates 

Your tax obligations aren’t over at the end of June. There are a handful of dates you should be aware of throughout the year – depending on your situation some of these will have actions required of you to remain compliant. Here are some of the big tax dates you need to remember: 

  • 1st of July. This is the start of the new financial year.
  • 31st of October. The final date to file your tax return (if you don’t have a tax agent or account).
  • 15th of May (of the following year). The last day of the following financial year for your tax agent or accountant to submit your completed tax return. 
  • 21 days after receiving your notice of assessment (which comes 2-6 weeks after your tax return is completed). Your tax agent should inform you of this obligation before this date.
  • 28 October, 28 February, 28 April, 28 July. These are the lodgement and payment dates for your quarterly BAS.

Lodging your tax return

Of course, it wouldn’t be tax time without plenty of things to fill out. To fill out an income tax return, you’ll also need to have a good understanding of:

  • All your sources of income – this will include your salary, government allowances, dividends, interest earned of money in the bank, etc
  • Deductions – dig out those receipts, work out your home office expenses (if applicable), and in general make sure you’re claiming everything you’re entitled to claim. 
  • Spousal income 
  • Personal Services Income
  • Tax offsets
  • Health insurance-related private health insurances
  • Relevant income tests, e.g. fringe benefits, employer superannuation contributions, child support etc
  • Capital gains & rental income

It’s a list long enough to make your head spin – and helps you understand why so many freelancers have an accountant.

You’ll have until October 31st to fill in and send in your income tax return (unless you have a tax agent or special dispensation, in which case you’ll have until the 15th of May). 

Make your way through this freelancer tax guide, find an accountant who understands your unique business model and come next end of financial year, you might just find tax time a little less stressful and a lot more successful.


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