Today on the Bloc, we talk ABNs and making the best of taxes for freelancers.
Taxes For Freelancers
Baby pandas! Okay, now we’ve got your attention while warming your heart, let’s talk taxes and freelancing. The end of the financial year is a head-spinning time full of sales you can’t afford and policy you can’t bring yourself to read. But being a creative, unfortunately, doesn’t mean that you ignore government regulations. We’ve done the legwork for you, so all you have to do is stay away from that YouTube video of a dog skateboarding and keep reading (we believe in you).
ABN, Get One
ABN (Australian Business Number) works much like your Tax File Number, but it’s for business purposes. If you go to work at an organisation in some capacity (think corporate life) it is highly unlikely you need an ABN. Some companies call their employees ‘contractors’ and require them to have an ABN so they can get out of paying pesky super funds and sick leave. This is illegal, and not cool, but we won’t get into that.
The main concern for freelancers considering an ABN is whether you’re running a business or doing creative work as a hobby. There’s not one test, but the Australian government looks at whether you’re doing your side hustle (or if it’s a full-time hustle, you go Glen Coco) regularly and if you have an intention to make a profit. Think a business plan vs. selling kitschy Christmas ornaments to your friends and family.
To be classified as a business, you don’t have to be selling a product. Often for creatives, the product is you. So whether you’re writing the next great Australian novel about a wombat who loves roller derby or editing said novel, you’ll probably need an ABN.
If you’re still on the ABN fence, consider your workload. My partner does marketing and blog writing for a company where he earns maybe $100 a week. This is all the writing he does and the ATO informed him he is a ‘hobbyist’ and cancelled his ABN. I, on the other hand, am trying to get writing jobs most days and grow my freelance income on a yearly basis. This shows that I’m building a business (one with a small turnover, but nevertheless it’s a business) so I get to keep my ABN.
You’ve gotten this far, you deserve this
Gee, it’s GST
Does your hustle turn over a gross income of $75K a year? If so, you’ll need to register with the ATO for GST. After, I’d recommend giving me a call and teaching me your ways. You are my Yoda, now.
You can register for GST with the Australian Tax Office online and remember if you’re earning over $75K you will need to include GST in your invoices to your clients. ASIC has a GST calculator you can use if you don’t want to spend your Friday night calculating 10% for everything you’ve even done.
Record Your Income as You Go (no, really)
If you don’t have a record going of your freelance money coming in, you need to start pronto. You can invest in accounting software, but my table system on a word document has kept me happy for the past few years.
You will also need to keep track of your invoices, save them in a folder on your computer and if you ever are audited, this will save you a headache and a half. Remember to include dates, the name of publications and perhaps most importantly when and if you are paid. The sad reality is that on average, I have to chase up half of my writing invoices and I am not an anomaly. I know writers, editors and artists who are owed thousands of dollars. So keep this in mind come tax time. It seems obvious, but it’s worth saying: don’t record as paid and pay tax on money you haven’t received yet.
Marty McFly is the Only Person Who Doesn’t Need a Super Fund
While not a pressing issue for tax time, if you’re working for yourself full time, you’re the only one who will be looking out for future you. A quarter of self-employed people in Australia have no super set aside. Super is something to think about now, not when you’re considering retirement.
ASIC recommends giving yourself a minimum of $25K each retirement year if you’re single and living a modest lifestyle. Okay, so this is a huge amount for most freelancers to save. Especially when a lot of us are living from invoice to invoice. But something to keep in mind: if you work full time as a freelancer (or work at a business for no more than 10% of your total income), you can claim a tax deduction for your personal super contributions. And if you’re a low-income earner, the government has a couple of options that may help you out.
From July 2017, you’ll pay no tax on your super contributions and if you earnt less than $37K this past year, you’re probably eligible to get the low-income super contribution. If you are eligible, the government will drop up to $500 into your super for you. No need to fill out a form (unless you're already retired), you just need to lodge your tax return.
You may have glossed over that section as we got a little technical, so simply put if you’re eligible = free money.
Deductions Aren’t Just for Your Accountant Dad
Taxes for freelancers aren't all bad. Any money you lay down for your business can be claimed as a tax deduction (woohoo). You’re a writer who bought a computer this past year? You can claim it. But, remember if you don’t have a receipt, the ATO won’t buy what you’re selling.
Also, keep in mind that you can only claim how much you’re using the item for a business. If you’re writing a novel on your computer 60% of the time and using it the other 40% of the time to play Tetris, you can only claim a deduction for 60% of the item.
Still with us? Good on you. If you want more tax-related bedtime reading, check out Sam Ryan from SAYSO’s tips here. And if you’re taxed out, now’s the time to treat yourself to Otto the Skateboarding Dog.
Katerina Bryant is a writer based in Adelaide. Her work has appeared or is forthcoming in the Griffith Review, Kill Your Darlings and The Lifted Brow, amongst others. She edits nonfiction for Voiceworks and Antic New Writing. Her essay, ‘A Pig in Mud’ was shortlisted for the 2016 Scribe Nonfiction Prize for Young Writers. She tweets at @katerina_bry.