Tax Advice And Tax Deductions For Freelance Workers

There are a huge number of tax deductions available for freelance workers regardless of whether your video skills are in popular demand or your Airtasker gigs are bringing in more money. Here is a list of important information you should aware of if you are currently working or planning to work as a freelancer.

If you are freelancer it is highly likely that you will be doing the majority of your work at home. The good thing about this is the fact that you will be eligible to claim some of the costs associated with your home office.

The major home office expenses are generally broken into two types for freelancer;
•    Occupancy expenses – this is if you undertake all of your work from home.
•    Running expenses – if you only do some of your work at home.

It is important to keep in mind that you must actually have a designated office or space that is not shared by other people to claim these expenses at tax time.

For example; working from your kitchen table doesn’t qualify as a designated office or space. However, a bedroom that has been converted into an office does qualify at tax time.

As a freelance worker it is likely that you have purchased some tools or equipment when you first started out and may have ongoing equipment costs, such as, a camera, laptop, maybe some power tools, accessories or software. In most cases you can claim the cost of these as a deduction.

When and How to Claim Back Your Costs for Freelance Equipment

•    Claim tools and equipment up to $1000 in your annual tax return.
•    Claim depreciation over a number of years on tools and equipment costing more than $1000.

Until the 30th June 2022 you will be able to claim an instant write off on business asset purchases of up to $30,000.  It will revert back to the $1000 limit from July 1 2022. If you need to purchase expensive equipment for your freelance work, now is the time to do it. But make sure you don’t spend money needlessly just because of the instant write off, remember you don’t get all the money back that you spend.

Protective Items

There is only one of you so you need to look after yourself. Thankfully the costs of purchasing, cleaning and repairing work related protective items are on the freelancer tax deduction list.
Protective items that freelancers often claim include:
•    Gloves
•    Aprons
•    Overalls
•    Steel capped boots or non-slip shoes
•    Hard hats
•    Hi-vis vests
•    Sunglasses and sunscreen (if you work outdoors)
•    Goggles or visors

Car And Travel Expenses

In many cases, freelance work means you’re out and about during the week. Whether its pitching to new clients or delivering your end products, make sure you’re not out of pocket. Keep a record of all your travel expenses and your personal car use. You may be able to claim tax deductions for car and travel expenses for all your work-related journeys.

•    Car expenses for work related trips. (Except to and from your usual place of work.)
•    Parking
•    Tolls
•    Taxi fares
•    Flights
•    Accommodation and meals if you need to stay away from home. For example: if you set up some software in another city and you need to stay overnight.

Mobile Phone Expenses

Working as a freelancer would be almost much impossible without your phone keeping you up to date with app requests, emails and client calls. So it is super important to keep track and keep a record of what percentage you use it for work over a month.

For example; if you use your phone 55 percent of the time for work? Include 55 percent of the cost of your monthly phone plan in your tax return.

Superannuation Contributions

Make sure you pay into a superannuation fund when you are a freelance worker. This is super important as when you work for yourself you don’t have a boss to put money into your super fund for you. Your super contributions are deducted from your taxable income, so make sure you look after the future you.

Personal Services Income (PSI)

If more than 50 percent of the income you earn from freelancing is from your knowledge, expertise, skills or labour then the ATO (Australian Tax Office) will define your freelance income as Personal Services Income (PSI) This applies to most freelance work and means there are a few other items you might be eligible to claim.

Examples of additional tax deductions for freelancers who earn PSI include:

•    Advertising and quoting expenses
•    Industry license and registration fees
•    Banking and accounting fees
•    Relevant insurance and liability fees

Other Valuable Tax Tips for Freelancers

Australian Business Number (ABN)

If you currently don’t have an ABN number it is super important for you to get one as soon as possible. You could pay way too much tax if you don’t.  A client can withhold 46.5 percent from payments to you if you don’t have an ABN, so remember to include it on all your invoices.

Keep Your Receipts

Keeping your receipts is one of the most important things to remember as a freelancer. As it’s the only way you’re ever going to get any cash back from the ATO. From that flash new printer down to that funky notebook you bought online. If a product is being used for your work as a freelancer, you can in most cases claim it.

Open A Separate Bank Account

It is highly recommended that you create a separate bank account to keep track of all your freelance related income and expenses. This will make it much easier for you to understand your freelance finances if you are not having to paw over statements that include all your personal cash flow as well. With a separate account you can see exactly how you’re doing and what your regular expenses are, as can a bank or broker. This is essential if you apply for a loan down the track. One account for all your freelance work makes tax time a breeze too.

Be Aware of Your Tax and GST Requirements

It is likely that you’ll need to arrange quarterly pay-as-you-go (PAYG) payments to the ATO for your taxes. If you earn over $4000 from your freelance and pay more than $1000 in tax. PAYG instalments spread your tax bill out so you are not lumbered with a lump sum to pay.

You also need to register for Goods and Services Tax (GST) if your freelance income exceeds $75,000 a year. This is another reason you need an ABN. You can’t register for or charge GST without one.

Take Advantage of Accounting Related Software

Consider taking advantage of accounting related software to ensure that you stay on top of expenses and bills, as well as your outgoing invoices.  Accounting software will help you keep your freelance finances structured and in check, meaning you have more time actually earning your cash not trying to work out where it’s all going.

Tax Advice And Tax Deductions For Freelance Workers