Many wish to be their own boss in the future, to be self-employed. Of course, it comes with its own share of disadvantages, but the benefits seem to outweigh them. With hard work, research, as well as careful planning, the dream of self-employment can be a reality.
If you are self-employed, you need to master money management. Bear in mind that the absence of an employer means that you will take care of everything. This includes your income tax. As an employee, you are used to having your employer take care of all tax-related matters.
But when you’re self-employed, you need to set aside money for your income tax and other expenses. As a small business owner, the Australian Taxation Office (ATO) will require you to make quarterly pay as you go tax installments. To give you an idea of how much tax you need to pay, you may use an income tax calculator.
As a self-employed individual, you need to meet your annual tax obligations. Otherwise, you may be required to pay large penalties. That’s why it’s important to keep due dates in mind. Make sure to include tax payments to your budget so you don’t miss any payments. Aside from penalties, the worst case scenario can be a legal action from the ATO to recover those taxes that you failed to pay.
To help you manage your income tax matters, here are some tips to keep in mind:
- If you run a business or other enterprise and have a GST turnover of $75,000 or more, or you provide tax travel (including ride- sourcing), then you will need to register for GST. If your business or enterprise doesn’t fit into one of the GST registration categories, then registering for GST is optional. Please keep in mind that if you choose to register, you generally must stay registered for at least 12 months.
- Open a separate savings account for tax payments. Stay on top of your tax obligations by setting aside money on a regular basis and depositing it in a separate savings account. Also, if your business is registered for Goods and Services Tax, make sure to include it in your account.
- Keep all receipts and invoices. Any work-related receipts must be kept not only for tax-related matters but also for other areas of the business. And this applies from major purchases and utility bills to office supplies.
- Hire an accountant. Yes, it costs money but with everything that you need to know about income tax and overall management of cash flow, hiring an accountant is worth it. He/She will be able to tell you about claims and where you can make deductions. Make sure, though, to get one who has experience with tax for self-employed individuals.
Do you have other ideas on income tax for the self-employed? Share your insights in the comments section.Read More →