Tax time tips for freelancers in 2020


25th May, 2020

Freelancers: Getting the most from tax time in 2020

As we approach end of financial year, it’s time for freelancers to look at how they can make the most out of the process.

Freelance life can be a breeze when it comes to doing what you love on your own terms. But setting aside the time to tackle tax time is a dreaded chore for even the most diligent creative.

But as June 30 looms large, freelancers and those who work in the gig economy will be looking for legitimate claims to make on their End of Financial Year (EOFY) tax return (particularly if COVID-19 has resulted in a downturn in earnings).

The good news is that freelancers may receive a bigger tax refund than usual this year. The Government’s $1080 tax offset will reduce your overall tax bill, depending on how much you earn.

READ: How to save tax in Australia – 15 tax minimisation strategies

Freelancers should bear in mind that tax returns cover the financial year from 1 July to 30 June, and you’ve got until 31 October to lodge your own tax return.

Common claims for freelancers include:

  • Laptops and other equipment related to work
  • Online courses
  • Protective gear
  • Travel related to work
  • Phone and internet connection
  • Parking

If you use your home space to deliver the majority of your work, you may be able to claim against these household expenses:

  • Rent
  • Mortgage interest
  • House insurance based on the percentage of the space used
  • Utility bills
  • Furniture depreciation
  • Repair
  • House cleaning
  • Deductions against any travel outside your home

Other tax claims for freelancers

If you’re serious about your freelance business, don’t forget to claim on personal development activities like any education or training you undertake. Or, you can even claim the build of a new home office if that’s where you’ve chosen to invest your resources.

Freelance graphic designer Tiffany Gouge is fitting out an internal office structure in the garage and claiming the $5,000 cost as a business expense.

“My accountant just told me to keep all the receipts and mark it in my accounting software as ‘office equipment’, and he will put the claim through at tax time.”

This move does mean that she will have to pay Capital Gains Tax when it comes time to sell her home, located in Orange, NSW.

Freelance content writer Sharon Timms, of Inkslinger Communications will make more claims on education this financial year.

“Talk about swings and roundabouts, right? With a downturn in business comes a swift opportunity to upskill,” said Timms.

“All those courses I’ve been threatening to do to strengthen and diversify my skills … well, now I’ve got the time. I’ve also spent time with a business consultant on how to grow my business.

“Prior to this, it’s been little more than an idea.”

In in the last two months, Timms has spent an additional $1,200 on upskilling, purchasing books, courses and masterclasses, which can be used to claim against her ABN.

Stay in the know

Sign up for added insights and business-critical news from MYOB.

A valid email is required
Congratulations! You've successfully subscribed to our newsletter!
Something went wrong

3 common mistakes for freelancers at tax time

Accountant Coco Hou works with a range of creative freelancers at tax time. When it comes to claims, the managing director of Platinum Accounting and Platinum Professional Training said the key is keeping records, providing receipts and proof of use where possible.

Freelancers have tried claiming deductions such as suits, business lunches sports events, which are unlikely to be allowable, according to Hou.

“I’ve also seen freelancer try to claim education or training that isn’t strongly related to the profession they work in,” she said.

If you’re really not sure what you’re doing, you’re probably best to work with an accountant to get your financials sorted at least once a year.

1. Omitting income is not a good idea

The ATO is able to data-match business activities and will reach out to taxpayers to address discrepancies.

This makes it easy to identify freelancers that may not be reporting all of their income, operate outside of the system or are not lodging returns.

2. Low income? Consider bringing forward your deductions

If you’re expecting to have a lower income next year, due to factors such as maternity leave, redundancy, a smaller or no bonus or perhaps cutbacks to overtime, then you can bring forward your deductions into this tax year, explained tax expert Dr Adrian Raftery, A.K.A ‘Mr Tax Man’.

“Stocking up your home office with stationery, laptops or prints or pre-paying subscriptions and interest for up to 12 months in advance are just some of the simple ways to reduce your income before 30 June,” said Raftery

3. Avoid claiming less than you’re entitled to

Checking you have the correct information in your documents prior to lodging your return will help make sure you haven’t missed any entitled claims.

“If you have a claim that’s legitimate, then claim it, no matter what size it is,” he said.

READ: Here’s the solution for filing receipts

“Don’t just claim the cents-per-kilometre method for car expenses – get your receipts and check your log books.

“Also, make sure you go through all your receipts and graze through every line of all bank account and credit card statements, because there is a myriad of deductions that you might be missing out on.”

Map out your year ahead (FY20/21)

Once you’ve handed over your tax return, it’s time to look ahead.

If you’re now earning over $75,000 a year on your freelance income, you will need to register for Goods and Services Tax (GST).

READ: Top 10 common GST mistakes in BAS reports you’re probably making

It’s also likely you will be responsible for Pay-As-You-Go (PAYG) payments to the ATO for your taxes. These instalments spread your tax bill out so you’re not scrambling to pay a lump sum.

And finally, while we’re able to give you some general tips and advice, nothing is better than working with an accountant able to consider your individual circumstances.

An accountant will also be able to offer insights into your business that you haven’t considered.

Tax time tips for freelancers

  1. Keep receipts: This is the most important thing to remember. Save receipts in your accounting platform so they’re handy at tax time.
  2. Keep it separate: A separate bank account for your freelance income and expenses is the best way to isolate your business activity.
  3. Use software: The cheapest and most efficient way to keep on top of expenses and bills is to use online accounting software
  4. Get help: Using the expertise of an accountant at the end of the financial year will ensure you don’t miss any deductions you’re entitled to.

This advice is general in nature and not intended to substitute the advice of a qualified professional. MYOB recommends any freelancer looking to get the most from their tax return should first contact an accredited accountant or tax advisor. You can start your search for an advisor near you here.