‘There are only two certainties in life: death and taxes’ – Benjamin Franklin
For Australians, tax time is here.
Have you been a good record keeper the past twelve months?
While the chances of you being audited are slim Murphy’s Law says you’ll get audited just after you get lazy with your taxes. Just get it done right the first time and then sleep easy for the rest of the year.
The last thing you want to do is end up with a massive tax bill at the end of the financial year or the ATO (Australia) , HMRC (UK) or IRS (USA) or the equivalent in your country, knocking at your door demanding their money.
If you’re running a business you need to pay taxes. If it’s a hobby then you should be ok. But how do you know whether yours is a business or a hobby?
Good question.
It doesn’t come down to just how much money you bring in but also how you conduct yourself on a day to day basis.
Some questions to consider:
Do you have a business and marketing plan?
Is your intention to make a profit/run a business?
Are you putting in specific hours each week to work?
Are you selling your work for a profit or just to cover costs?
Do you promote your work?
If your intention is to turn a profit, then it’s likely that you are running a business.
Each country has different tax/business laws so make sure that you check out the rules and regulations for your area. Your best best is to give the taxation office a call or speak to a qualified accountant.
In Australia, the ATO website has an easy to use questionnaire that you can use to help you decide whether your venture will be treated as a hobby or as a business. You can check out the questionnaire here.
US – Starting a business?
If you’re in Australia as I am, June 30 is the end of the financial year. Australians have till the 31 October to file their tax returns unless they’re registered with a tax agent.
Hopefully, you’ve overpaid rather than underpaid so they can get a nice refund to spend on a holiday or more books and stationery to fill their shelves. It’s like getting a little bonus without doing the extra work!
Deductions
If you’re a writer/author/freelancer who makes money and intends to make a profit rather than just to cover your expenses then you should speak to an accountant to ensure you are deducting the right things.
I love deductions. It’s all those little things that can reduce your tax bill significantly. Charity donations are the most common deductions that people use. Have you given money away to charity this year? Make sure that you keep a receipt for everything you’ve donated over $2. You can claim it at tax time.
As a writer making a dime you might be able to claim the following:
Toner and paper
Notebooks and pens
Internet connection
Subscriptions
Editor, VA and cover designers costs
Business Coaching
Professional development courses
A percentage of your phone bill
(I’m not a tax professional so this is just general advice. Speak to an accountant in your area who can assess your needs based on your activities and location. Different countries, different rules!)
Plan ahead
If you’re working for yourself then you’re probably already putting away a portion of your income to cover taxes. If you have a full time job and freelance on the side you should also be putting cash away for the tax man to collect.
* Put away at least 20% for taxes from your first payment
* Get an ABN (Australian Business Number) or the equivalent in your country. In Australia if you don’t have the ABN 49% of your income could be sent straight to the tax office.
*Do you need to register for GST (Goods & Services Tax)? If you’re earning under $75K then probably not. Planning on earning more? Check with your accountant.
*Keep all your receipts – you need to prove what you’re spending and deducting
*Record all your income and expenditure – you can click here to see what I use
*Maintain an invoice system
*Get an accountant!
If you’re not sure as to how much tax you should be paying each year, start putting aside 30% until you speak with an accountant. If you are able to forecast how much you anticipate earning then check out the tax brackets that apply to you. If your earnings fall below $18,200 (in Australia) then you won’t be paying any tax. If you plan on earning $35K, then start putting aside 20%, $80K, 35%, over $150K aim for 45% just to be on the safe side.
In the second year, the ATO will tell you how much you need to pay quarterly based on the previous year’s earnings. If you anticipate on earning more, make sure you put that little bit extra away so not to get bitten with a nasty tax bill come tax time. Your best bet is to speak to an accountant so they can advice you based on your personal circumstances. Their fee will be tax deductible the following financial year so keep your receipt!
No body likes paying taxes. Unfortunately, if you’re earning an income paying tax is inevitable.
How do you handle tax time? What are some things that you are able to deduct? Do you use an accountant or do you do your own?
I agree with this, of course!! I’m lucky though to be both employed part time and then be freelancing on top of this. As you say, always a stress when you need to work