Every day, there are thousands of people who want to quit their boring job and want to start their own venture. They dream of not needing to answer to a superior and calling the shots to all the important decisions.
Self-employment is satisfactory and rewarding in many ways. The perks of working for yourself will seem unsatisfactory if you are not able to navigate your way through it tactfully.
Financial security is one of the most important aspects, and so is a tax deduction. It might seem very complicated to understand the tax deductions for this type of work.
Here are 9 Self-employment Tax Deductions if you are Based in Australia:
1. Home Office: Most people who wish to become self-employed start off by establishing an office in their home. This will reduce the cost of renting out another space specifically for this purpose. It also comes as an advantage when it is time to file for your annual tax deductions.
When you have a setup in your house, solely for work, the expenses related to it can be deducted. For example, the costs of air conditioning or heating systems can be considered.
The electricity bills and money spent on buying office equipment can be included. To be able to deduct these costs from tax, you will need to maintain strict records of the hours that you have spent in the office and submit proofs if necessary.
2. Self-Employment Tax: Employing yourself means that you use personal resources to get things done. If more than 50% of work is being done by skills, labor or personal talent then you might be eligible to claim for more items than usual.
The money spent on advertising your products, license, and registration fees can be deducted. Any insurance or liability fees related to your company can also be claimed.
3. Capital Expenditures: For any company to grow and sustain itself, physical assets are important. These assets give a sense of stability to the company and also increase the scope of expansion.
In the beginning, capital expenses are usually lesser than $6500, and you can claim back every penny of it. Larger investments, however, can be claimed gradually over the years. Such investments include vehicles, computers, printers, Xerox machines, any fittings for warehouse or office and other types of equipment.
The advantage of claiming for items over a span of time is that their capital value decreases. If you claim 15% for an item in the first year, it will become 30% from the years thereafter.
4. Rental Property Deductions: If you are the owner of a space you are renting out or willing to rent out, you may claim a wide range of items for a tax deduction. You may include the registration and preparation of the lease, agent’s share of the money and any advertisement done to find a suitable tenant.
The land tax, interest on any land investment and also water rates can be added. Annually, the landlord can claim for items with a depreciating value like stoves, carpets, and more.
Improvements that are made by you on the property like changing the structure of a room or remodeling the space can be claimed. Regular pest control, repairs, and anything that is done to maintain the place will be included. However, you will not be able to claim money on travel expenses.
5. Utility Bills: Whether you have an office at your home or you are simply renting the space to someone else, one of the highest expenditure is utility bills. An office works round the clock and is open for most of the day, which means that resources are being used continuously.
The most commonly used utility bills are of electricity, gas, and water. It can be quite expensive to heaters or coolers running the entire day to provide a comfortable temperature for the employees.
Almost everything at the office is run by electricity, be it using the copier or a coffee machine. Hence, every utility bill can be claimed for a tax deduction.
6. Claim Depreciation: Any assets bought for the company can be claimed, either immediately or over a period of time. In this manner, you will not be spending too much on getting the assets needed.
Any asset that is bought for less than $300 can be instantly claimed and deducted. Items like calculators, equipment, books, and other stationery might seem like small things to buy but can become a bit over the budget when bought in bulk.
Being self-employed needs you to save as much money as possible. In the case of assets, which cost more than $300 can have tax deducted slowly with time. The amount that will be deducted will depend on the value, effectiveness, and life of the said product.
7. Education: There is always room for personal improvement, especially if you are self- employed and your skills play a vital role in the job you do. It can add value and change your perspective on ideas but paying for education is not cheap.
If you decide to self-educate yourself and if the subject of the study will help improve your work, it can be claimed in tax. Self- education expenses may include fees, textbooks and notebooks, stationery, student union fees, and other necessities like laptop etcetera. Loan repayment for higher education cannot be included.
8. Maximize Tax Offsets: There are various kinds of tax offsets, and you may check if you are eligible for any of those. There are low-income tax offset, senior pensioner and Australian tax offset and also superannuation.
Superannuation can be the money that you contribute on behalf of a spouse who has a low income. These tax offsets are an advantage as they directly affect the amount of tax you pay, and it can get considerably lesser.
Your eligibility will depend upon the income you receive, the conditions of the offset that you need to meet, and also your family situation.
9. Superannuation Contributions: There are both concessional and non-concessional contributions that can be made before the end of the financial year. The concessional caps have a limit which may change from year to year.
They can include contributions from employee salary amounts or can be personal. It is important to stay in the limit of the cap because the excess amount paid will be taxed separately. If there is excessive money, it is advisable to remove it before June 30 so that it does not count in contributions.
For those who are self-employed personal contributions that have been claimed will add to your concessional contribution cap. If you have employees that have contributed, you can claim it as well. Firstly a notice of intent needs to be lodged and only when it is approved will you be able to claim for deduction.
Taking Help From a Professional:
When you are work for yourself, the risks are higher. It might be hard to make decisions and even harder when you do not understand the correct choice to make. Taxation and claims can be a complicated matter to understand and it is always better to take some help, at least in the beginning.
A professional tax expert will give you advice on what possible tax deductions you could get, the time by which you should file for taxes and make contributions and the obligations that you have towards the ATO. It is important that the advisor that you choose is fully aware of the subject and can be trusted. Any query that you have should be cleared out professionally so that you are not misinformed in any way.
Seeking out help from an accountant or advisor will keep your company safe from falling into debt and keep you informed of the tax changes happening around you. The above-mentioned things can be claimed and reduced. You will end up saving more money than you think if you are aware of your eligibility.
Being your own boss might mean that you always run on a tight budget, but it does not have to be so. Paying taxes on time and claiming deductions correctly will leave you with ample money to have a comfortable present and a fulfilling future.