In recent years, a growing number of Australians have transitioned to self-employment, seeking to supplement their income or break free from traditional employment. While this shift offers freedom and flexibility, it also comes with significant tax obligations that many new business owners overlook. To assist, H&R Block has shared essential tips for managing taxes effectively.
Income from Your Business Is Taxable
One common misconception is treating a side hustle as a hobby. However, the Australian Taxation Office (ATO) mandates that all income from business activities be reported in your tax return. Ignoring this responsibility could lead to penalties or legal issues.
Fortunately, many business-related expenses are tax-deductible, reducing your taxable income. For example:
- Fees or commissions deducted by sharing economy platforms.
- Proportional claims for home-office expenses such as internet, phone bills, and office furniture.
- Expenses with mixed private and business use—only the business portion can be claimed.
Financial Planning for Self-Employed Individuals
Adjusting to the financial responsibilities of self-employment can be challenging. Unlike employees, who have taxes deducted directly from their pay, self-employed individuals must actively manage their cash flow. Setting aside money for tax payments is essential to avoid financial stress during tax season.
For businesses with annual turnovers exceeding $75,000, registration for the Goods and Services Tax (GST) is required. GST-registered businesses can claim back GST on purchases, but must lodge Business Activity Statements (BAS) quarterly. This adds another layer of financial planning and record-keeping.
Benefits of Professional Tax Assistance
Navigating taxes independently can be daunting, but professional assistance can make the process smoother. Engaging an experienced tax agent or accountant offers numerous advantages:
- Ensures compliance with tax laws and accurate reporting.
- Identifies overlooked deductions, potentially saving more than their service fees.
- Provides peace of mind by handling BAS, GST, and tax returns.
Moreover, the fee paid to your tax agent is itself tax-deductible, adding to its value.
