Freelance Friday: Taxes

30th December, 2011 on Freelancing 2 Comments

I got a question! If you have any questions you’d like me to write about, just comment here or ask through FormSpring.

Can you go into more detail about paying taxes as a freelancer? That’s always confused me. Like at what pint do you start paying taxes, and what type of records should you keep to show to an accountant. Thanks.

- Anon

First up: I find this sort of stuff pretty confusing too, so I can’t promise that I’m the most reliable source of information. I’d definitely recommend speaking to a tax accountant or small business advisor, even if you plan on doing your own tax eventually, just to make sure you have everything set up correctly to begin with. You really don’t want to be in the position of having to pay back a ton of tax that you didn’t realise you owed in the first place. When I started out, the accountant that I spoke to didn’t even charge me for that first appointment (although he turned out to be very unreliable and I didn’t end up using him at tax time, but that’s another story). Even if they do charge a fee for the advice, it’s worth it to get things right from the beginning.

All this information will be as it relates to Australian freelancers. Here’s a really long and rather boring document from the ATO that you should really read, as it’s more comprehensive and reliable than my information here. But here’s a summary.

Business or Hobby?

The first thing to work out is if you have a business or a hobby. The ATO has a rather vague article that’s supposed to help you figure this out. The main jist is this: if you’re doing work with the intention of making a profit, it’s a business. It doesn’t matter if it’s just something you do on weekends whilst carrying on with your full time work, or doing part time – it’s still a business. If you’re not really making a profit and aren’t really doing it as a source of income, then it’s a hobby.

For example: I’ve had a craft stall at a handmade market and a few anime conventions. The amount that I made from these things was just about enough to cover my materials, a bus fare to Sydney from Canberra and (barely) a hotel room for the night. It just barely covered my expenses (or not even, in some cases), so I made negligible profit and don’t consider it at all a source of income. It is definitely a hobby. Therefore I didn’t put the money I received or my expenses on that year’s tax.

On the other hand, if you’re calling yourself a freelancer that implies to me that you’re doing it as a business. Even if you’re just doing it on top of a full time job and are just charging peanuts (which is what I was doing when I started), it’s an income and it’s taxable.

Acronyms galore

ABN: If you’re running a business you can and should register for an Australian Business Number (ABN). The form is a bit of a pain to fill out, but it’s free and makes doing your tax etc. much easier. You can just use your personal Tax File Number (TFN) if you’re operating as a freelancer/sole trader.

Business Name: a freelancer/sole trader can operate under their own name, so don’t need to register a business name. Some banks require you to have a registered business name in order to open a business account though (which I recommend doing), so you might find yourself having to get one anyway. The process for doing this depends on what state you’re in, and there is a yearly fee (which can be claimed as a business expense, of course). Mine costed $90.

PAYG: You will be told if you need to Pay As You Go for your tax, after your first tax return as a freelancer. For me, this is calculated based on my previous year’s tax and paid in quarterly installments. They do charge you extra fees if you don’t pay them or pay them late, although if you don’t leave it ridiculously long they usually waive them. At the end of the year when you do your tax return, if your yearly earnings differ to the previous year’s you might end up getting some back or having to pay a bit more.

GST: If you earn over $75,000 per year as a freelancer, then you have to register to claim Goods and Services Tax (GST). If you earn less than that amount, you can still choose to claim GST – I’ve been told that it can work out better for you tax wise. I don’t earn quite that much and don’t want the extra work of figuring out GST at this point, so unfortunately it isn’t something I’m familiar with yet. If you’re not charging GST, make sure to make a note of it on your invoices so it’s clear to clients.

Record Keeping

ATO has a lengthy guide for this as well. The basic things that you really must keep track of are:

record of invoices and payments made to you
receipts, with the business’s ABN on them, for any expenses
bank statements for your business account
your previous tax records
justification for any partial expenses*

These need to be kept for at least 5 years. They can be electronic (my software receipts and business statements all go to my email), as long as you can print them out easily if needed.

How fancy your record keeping needs to be is up to you. I have probably the most basic ‘system’:

spreadsheet of payments made to me, with the client’s name, project, date paid and amount
spreadsheet of expenses, with the type of expense, date and amount
file of printed receipts
folder on my computer for electronic receipts
folder in my email client for email receipts I haven’t saved to my computer yet

There’s lots of other ways of keeping records, and if your expenses etc are more complicated then you might want to look into purchasing some software for it. I haven’t really dabbled with any so can’t offer any recommendations – if you’ve tried something you can recommend please let me know!

* Some things will be part business, part personal – for example, my mobile phone or petrol for my car. I only claim part of these things as business expenses. To justify the percentage used for business, keep a logbook of usage for a week or so.

Hopefully this has given you a general idea of what you need to do based on my personal experiences, but I really recommend speaking to someone more knowledgeable about these things. I don’t claim that any part of this is 100% correct, legal advice and am admittedly terrible at all things tax, so take all of this with a grain of salt and read through the tax office’s information thoroughly yourself as well.

Good luck!

I’m going to try and write a weekly post each Friday about what it’s like to be a freelancer! This is something that I find a lot of people are curious about, and there’s a lot of incorrect assumptions out there. If you have any questions for me on freelancing, leave a comment here or on Formspring.

Tagged: Australian tax, book keeping, Freelance Friday, questions, sole trader, tax, tax for freelancers

Freelance Friday: Holidays

23rd December, 2011 on Food, Freelancing No Comments

Holidays are a bit different for a freelancer – there is no paid leave, no shutdown period, and you don’t get anything for public holidays. On the other hand, if you’re organised enough you can take a break whenever you want to, which gives flexibility for travelling in off-peak seasons or taking advantage of last minute deals. Usually I choose to not work during public hoildays unless things are extremely busy, so I can spend time with The Boy and friends on their day off.

This year I don’t think I’ll be taking a summer break – Christmas, Boxing Day and New Years Day will be taken up with family parties, but other than that I’m still planning to go into the office and get work done. January is generally a quiet month for me, so the plan is to work whilst there is work to be done, and relax a bit more as it eases up a bit in the first quarter of next year. I have some personal projects, including rebranding my business, to work on during the downtime – I hope I end up with a bit of time to spare for it!

If you’re working from home it’s easily to get a bit down around Christmas – especially when everyone around you seems to be going to work Christmas parties (The Boy had four!) and you don’t really have anyone to party with. Don’t be too sad – give yourself an afternoon off, get some nice food and drinks and have a solo party where you don’t have to worry about offending your boss or getting super sloshed. Or get some other freelancers together and have a little party together! We had a little Monk Studio (and Friends) lunch at Five Bar today, which was a great way to round out the year.

A few tips when it comes to holidays as a freelancer:

Save up for downtime

When figuring out your rates and what you hope your yearly salary is, remember to include some holiday time – otherwise you might find that you can’t afford to pay yourself (or your bills) when you take time off. It also helps to have a bit of a buffer in your business account instead of living hand-to-mouth.

Plan way in advance

Not such a big deal for the Christmas period as it’s likely most of your clients will be in holiday mode too, but if you’re planning an extended holiday it’s important to plan far in advance so everything that needs to be completed before the holiday gets done and clients know what’s happening. I’ve had to do bits of work and answer work calls on holidays before, and it really sucks! Of course you can’t plan for everything, but being organised definitely helps.

Make sure you give yourself a break sometime

If you’re working days and nights and weekends and public holidays, maybe it’s time to give yourself a short break. It’s hard to tear yourself away sometimes, but clients do understand that you need a break sometimes and you don’t want to burn yourself out!

Only a few days left until Christmas – if you’re taking some holiday time now, enjoy yourself!

Tagged: Five Bar, Freelance Friday, holidays, lunch

Freelance Friday: Organising Money

16th December, 2011 on Freelancing 1 Comment

I’d just like to state upfront that I’m not the best person with money. Not that I can’t save money (I’m actually rather good at that), but when it starts to get a little complicated it starts to just go over my head. That said, these are things that seem to be working for me at this stage.

Have some savings

One piece of advice I see constantly coming up in regards to freelancing is to have a nice little nest egg of savings before you start. Doing this definitely helped me in some tough times when I just got started with freelancing, and I’ve continued to keep 3 months or so in earnings tucked away in case I need it again. I haven’t needed to dig into it for some time, but if I have a slow couple of months or aren’t able to work for some reason at least I’ll still be able to pay my rent. In the meantime it’s growing slowly in a high interest account, which is nice.

Keep a separate business account

This might seem obvious, but to begin with I just had everything jumbled into my personal accounts. It was a bit of a nightmare. Now I have a separate account that all my invoices get paid into, and all my expenses (including my wages) get paid out of. It’s much easier to see exactly how much is going in and out of the business and keep track of how it’s all going. If I don’t have enough to pay myself or my quarterly tax, I know I’m in trouble. If have surplus I can give myself a bonus or shift it into my just-in-case business savings.

Put taxes away to one side

I pay my tax quarterly, and it always seems to be a bit of a scramble to come up with the money. I can imagine it would be even worse if I were paying it only once a year, as I know some freelancers do. I’m finding it best to just keep that amount aside so it’s there when I need it.

Have a salary

Since properly separating my personal and business bank accounts, I’ve started paying myself a regular fortnightly salary. This amount is currently a modest sum, a bit less than what is left from my net income after tax and expenses have been taken out. I’m finding that having a regular, scheduled income makes it much easier to sort out my personal budget and savings. When everything was merged, I’d have a brief “I’m RICH!” moment straight after getting paid, followed by not keeping track of spending and winding up with not a whole lot to work with. If I’m really really ahead (including the amount I need to pay the tax man) then I give myself a bonus for being awesome.

Outsource the hard stuff

I use an accountant to do my end of year tax, and would probably get a bookkeeper to do handle things in between if it got too difficult. Dealing with tax and money to that extent is just a pain to me – I’d rather spend that time doing what I’m actually good at, and hire someone else to do that stuff.

Tagged: business, Freelance Friday, saving

Freelance Friday: Bad Stuff

9th December, 2011 on Freelancing 1 Comment

So last week I wrote about the Good Stuff – but don’t get too excited yet, freelancing isn’t all peachy and working in pajamas.

Work-life balance

The problem with setting your own schedule is that something tends to get a bit lost with work-life balance. Many freelancers either work ridiculous hours and never have time to enjoy their rewards, or procrastinate and don’t work enough to get by or achieve deadlines. Most other self-employed people I’ve spoken to run towards the former (or at least they say they do); I have to admit that I tend to struggle sometimes with the latter. It takes a lot of discipline to get the work done but still make sure you have time for other important things in life too. This is the reason that freelancing doesn’t suit everyone – not everyone has the discipline to ensure a good balance. I’ve found that working in a shared office is a big help with the procrastination that can happen when working at home.

One-man band

Unless you have the cash to outsource the bits you don’t want to do to other people, as a freelancer you are the entire business. You aren’t just what’s on your business card – you’re also your own marketer, accounts manager, bookkeeper, customer support, project manager, and other roles that would have been taken care of by someone else as an employee. If you don’t have any training or interest in these aspects of running a business, this can be tricky. Personally I hate doing anything akin to admin, and really have to force myself to get on with it. It helps to find tools and tricks to do these less fun tasks as quickly as possible so you can get on with what you do best. If you can afford and justify it, outsource!

Loneliness

If you work alone, especially if you work alone at home, it gets very very lonely. It helps to be comfortable with your own company, but it’s easy to get to a point where you haven’t left the house at all in days. You really do have to force yourself to get some kind of regular human interaction (and no, Twitter and Facebook help but don’t completely count). I’ve found that doing classes that force you to leave the home/office, meeting up with friends regularly and getting involved in the web industry (or whatever your industry) community helpful.

Health

If you’re working insane amounts or end up not leaving the house for ages, it’s likely you’re not getting enough exercise. It’s easy to forget how important health is when there’s heaps of work to do, but as a freelancer it’s more important than ever. Why? Because there is no sick leave. If you don’t work, you don’t get paid, simple as that. A long-term injury or illness can easily leave you with no income. It’s much easier to take care of your health to begin with rather than trying to fix it later.

Finding Work

This is something that a lot of people struggle with, particularly if they’re shy or not particularly good at marketing themselves. It’s not something that you need to learn as an employee, and as far as I’ve seen it isn’t something that’s taught in schools or universities. If you’re not a natural, you have to learn quickly – or end up with nothing to do and nothing to eat. Sometimes even if you’re doing everything right it can still be hard to find work – the economy, location and trends all play a role. Once you have a bit of momentum and few jobs under your belt, word-of-mouth is a huge help. But getting there certainly isn’t easy!

Security

Following on from the above, until you really get going there isn’t a huge amount of job security. It can make things really hard to plan in advance – do you really know you’ll have enough money for that big holiday? – and hard to get any kind of loan. I imagine it’s particularly difficult to do if you have children or other dependents. This is why I’ve chosen to start my freelancing career fairly early, even thought it was a bit of a jump – I’m hoping that things will get more and more stable over the years and I’ll eventually be able to safely commit to buying a property and think about having kids. It does get better as you get better at running a business, but you do always have to be on your toes and have a bit of a cash safety net waiting in case the worst-case scenario happens.

But don’t fret

With some planning, discipline and a bit of luck freelancing can be doable – and worth it! I’m still at it and don’t plan on giving up any time soon.

Tagged: Freelance Friday

Freelance Friday: Good Stuff

2nd December, 2011 on Freelancing 1 Comment

This is partly inspired by Gary’s post on The Upside of Freelancing, which I found really interesting and useful when I was starting out back in 2008! I’m definitely a little more green, but here’s my perspective.

Flexibility

Working from home, in our courtyard

This is without a doubt the best (and the worst, but I’ll come back to that one in Bad Stuff) thing about freelancing. If you set your own schedule you can adapt it to suit your lifestyle and circumstances – and rearrange it as you go if you need to. I can do a grocery run, or meet up with a friend for lunch, or go for a jog when I choose to, and make up for lost work time later. For holidays it takes a bit more planning and work in advance, but I don’t have to worry about using up holiday days or whether colleagues are taking time off at the same time. I tend to generally be fairly typical in my working schedule, but it’s useful to have that flexibility when I need it.

Attire

Okay, clothing doesn’t sound like much of a pro – but if you saw how much my friends spend on business attire maybe you would agree with me. As a freelancer I’ve worked from home, where I just wore t-shirts and shorts, or even worked in pajamas. Working in pajamas is awesome. Now that I’m in a shared office I pay a bit more attention to what I wear, but it still usually tends towards t-shirts, jeans and ballet flats. No shirts, no heels, no pantyhose, no designer branded anything – just the way I like it. I don’t have a gap between ‘casual’ and ‘business’ clothes, I just have clothes.

For meetings I try to dress a little more formal – I like to call it ‘pseudo business’ – but as my clients tend to be mostly small businesses or organisations they tend to dress just as casually as I do. Plus hey, I’m a freelance designer – we’re supposed to be quirky and creative right?

Variety

This might not go for everyone, but as a freelance web designer I tend to take on a large number of smallish jobs – so there’s lots of variety and lots of different clients. I can be sketching logo designs one day, designing a website for someone else the next, then coding up another client’s website another day. Each job presents its own possibilities, challenges and new ideas to work with. I think I would go a little insane doing all design, or all development, or always working with only one client; the variety of my work keeps things interesting and challenging for me. This sort of thing might not suit everyone, but it is something that as a freelancer you have control of. Want to stick with doing one thing? Take on a longer contract, or market yourself as a specialist in one particular thing.

Loving your own company

When you work by yourself every day, you either begin to enjoy the solitariness and feel comfortable with your own company, or you go insane. I’ve gone with the former. Of course it’s necessary to get some actual human interaction regularly (it helps if you live with someone, or do some kind of class that forces you out), but I think there’s something lovely about being comfortable with yourself. The greatest love of all and all that.

Accountability

Okay that might not sound like a good thing exactly, but in a way it is – when the business is entirely your own, so is its successes and failures. Every win is my own; when I look at how far I’ve come I can safely say that I built the way myself, right from the bottom. That’s not to say that I haven’t had the support and help of many wonderful people along the way, but in the end it’s me taking the risk and doing the work and getting somewhere with it all. It’s a lot of pressure, and it isn’t always a win – but overall it’s coming up well and that’s something to be proud of.

Awesomeness

I can’t help being a little smug when people ask me what I do and I say ‘freelance designer’ and their eyes light up. They don’t necessarily know what the hell a freelance designer actually does, but it hints at creativity and freedom that’s missing from the jobs of a lot of people I know (this could be because for some reason half the people I know seem to be lawyers). Sure, I might not be able to afford their designer brand whatever, but I have an awesome job and I actually like it. Apparently this is a very rare thing, and I feel pretty pleased with myself that I’ve found it.

Tagged: Freelance Friday

scroll to top