Last year, I spoke to over 250 gig workers / self-employed individuals and asked them what they love and hate about being a sole trader and solo-preneur?
While most of them loved the flexibility, freedom and autonomy that gig work offers, pretty much all of them showed me a frustrated face when I said “What about taxes?”
What is it about ‘taxes’ that gig workers hate? Though Gig workers spend over $500/year on accountants, they still miss out on $1000+ in tax deductions.
Here are the five things you must know about taxes to meet your legal obligations and maximize tax deductions
Know your legal obligation
Unlike traditional employees, where the employer pays the taxes before sending you the remaining money, Sole-trader / independent contractors in Australia are required by ATO to fill your taxes GST and BAS (if applicable). ATO considers you as a business entity working under an ABN.
Track all your business expenses
Like all businesses, you need to keep track of all the expenses you incur for your business. Ensure that you log your expenses and store their receipts for reference purposes. This habit of tracking expenses will help you maximize your tax deductions significantly.
Some of the expenses that are tax deductibles
- Vehicle costs
- Insurances
- Registrations and licensing costs
- Use of software tools
- Gas, Services and maintenance
- Training costs
- Accounting fees
- Software subscriptions
- Mileage covered for business
- Income protection insurances
- Vehicle rentals
- Tools and equipment
Find out what expenses in your business are tax deductible today!
Requirement - You are required to keep your financial records for at least 5 years.
Understand your taxes
As a sole trader, you must pay taxes on your income. You would be required to pay tax at the same income tax rates as individual taxpayers. In some cases, you may be eligible for a small business tax offset (recommend you check ATO, financial advisor or accountant)
Check for the latest tax rates here.
Keep aside money for taxes:
As mentioned earlier, as a sole trader, you must pay taxes to the government. It is important you keep the tax amount aside from your earnings on a weekly or monthly basis. This saves you from an end-of-year surprise of paying 1000s in taxes, and you will be more prepared to meet your tax obligations.
Steps to get this done
- Calculate your income weekly
- Estimate the annual income to find the applicable tax rate
- At the end of the month, set aside a percentage of your income to a different account for tax purposes.
Super contributions
As a self-employed individual, you shall contribute to your super payment on your behalf. This contribution is tax-deductible and hence should be considered when calculating your tax returns.
While super contributions are not mandatory, it is highly recommended so that you can invest for the long term and create a more financially sound retirement.
Check the ATO website for more information!
