How To Reduce Taxes When Self-employed?

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    Being self-employed is challenging since one must market their services, incur expenses, provide services, and then deal with tax filings. It's challenging to shoulder expenditures and risks that are often covered by other people when working on a project.

    They may need to demonstrate the worth of their goods since they do not attract enough clients or do not make enough money. You'll have to manage your finances in addition to taking advantage of the advantages of self-employment.

    You're guaranteed two things in life – death and taxes. While investing in your physical and emotional well-being can help you live a longer, healthier life, careful financial planning and decision-making can lower your tax obligations. When it comes to taxes, everyone wants to pay less. Learning how to lower your taxable income will help you keep more money in your pocket while consolidating your debts and repairing your credit faster.

    If you're self-employed – that is, a sole trader or a partner in a partnership – You are not required to contribute to your own super fund. To save for your retirement, you might wish to think about super.

    In general, you are exempt from making super guarantee (SG) payments for yourself if you operate as a sole proprietor or are a partner in a business. However, as a strategy to save for your retirement, you might wish to make personal contributions to super.

    From July 1, 2017, the majority of people will be able to deduct all of their superannuation payments up until the age of 75, regardless of whether they are self-employed or not. People 65 to 74 years old will still need to pass the work test in order to be able to contribute and claim a tax deduction. Remember that if your contributions go over the allowed amount for the year, you may owe additional taxes.

    Additionally, you can be qualified for the super co-contribution payment. This aids those with low to intermediate incomes who are qualified to save for retirement. Unless you have claimed your contribution as a tax deduction, the government will match your donation if you are eligible and make super personal donations up to a specific amount.

    You can start to feel anxious right now if you haven't already spoken to your accountant or bookkeeper about concerns related to the conclusion of the fiscal year. After all, you've put in the time and are undoubtedly desperate to keep some of that profit you worked so hard to acquire. But as a self-employed person, you must first comprehend the nature of your costs.

    Choose your business structure as one of your first decisions as a self-employed business owner. Most people opt to create their own businesses or operate as lone proprietors. The type of business structure you select will impact how much tax your company will have to pay. Depending on whether you choose a sole proprietorship or a company form, this article discusses your tax duties as a self-employed business owner.

    Business Vs. Personal Expenses

    Expenses that are directly connected to generating your taxable income are allowable deductions. After-school care and mortgage interest payments are examples of private and individual expenses that cannot be deducted.

    The expenses you can claim — Depending on the kind of asset you bought or service you used, you might claim them at different times. While capital expenses must be deducted over time, operating expenses can typically be claimed in the year they are incurred.

    Companies and sole proprietors both have tax and reporting requirements, but there are several important distinctions that you should be aware of. The differences and some commonalities are listed in the table below.

    Easy Ways To Save On Taxes For The Self-employed

    Set up a Tax Savings Account other than Your Main Account

    One should establish separate savings account for business transactions and tax savings after becoming self-employed. Having separate accounts makes managing your personal and professional life much easier. Even while some independent contractors use a single account for everything, it is clear that taxes, earnings, and outgoing costs might be misplaced in the chaos.

    In the long run, it will be hassle-free if you create different accounts. Keep between 15 and 20 per cent of your salary in a separate saving account for each check you deposit. Write a check out of the account after calculating the tax payment for the year.

    Prepay Some Expenses This Year To Reduce Taxes

    Pay in advance and move this year's deduction up. If your cash flow is strong, you can prepay your:

      • Business loans (prepay on fixed rates 12 months in advance)
      • Office and equipment lease payments
      • Business Insurance
      • Business-related subscriptions
      • Business travel, seminars and conference bookings
      • Telephone and IT services

    Try to combine the advantages of the tax deduction and the discount you receive for paying your supplier in advance to kill two birds with one stone. There will almost certainly be a service provider or salesman aiming to increase their sales results before June 30 for every small business looking for a tax benefit.

    You can pay a portion of your taxes in advance to avoid the bother of having to pay them later if your finances don't go as planned.

    Along with office and equipment leasing payments, company loans can be paid off one year in advance. Subscriptions, seminars, and phone and IT services, among other things, can all be prepaid.

    You can even ask for a tax deduction when you prepay in addition to receiving discounts for doing so.

    Before the end of June, certain service providers might be looking for strategies to increase revenue.

    Use Salary Sacrificing

    Salary sacrifice is one method of tax-saving in Australia that people can learn about. This also goes by the name "salary packing," and it operates in many ways. A taxpayer would contribute some of their pre-tax income to a benefit with a salary offer before they are taxed. Motor vehicles and superannuation are two of the most popular salary sacrifice perks.

    As a result, an employee would forfeit a portion of their pre-tax compensation before receiving it. They may, for instance, employ income sacrifice to cover the cost of a new car, computer, insurance, monthly rent or mortgage payments, and other expenses. With a few exceptions, these benefits, often known as "fringe benefits," can help Australians avoid paying hundreds of dollars in taxes each year.


    One restriction on pay sacrifice, also known as salary packaging, is that only a certain amount may be done. The perks your employer provides may also be impacted by the Fringe Benefits Tax, or FBT. Employers may offer to salary package an automobile as a novated lease, for instance. This arrangement lowers your taxable income and gives you access to a new car. It is made up of your employer, you, and a financer. You can also think about salary packing your superannuation if you want to increase your payout this year.

    Claim ALL Deductions

    You should claim any money you spend on things connected to making money. To pay less tax in Australia, make sure you declare every deduction that is applicable. Even seemingly minor and small items might build up to big savings at the end of the fiscal year. You can still write off the money you spent on anything as a work-related tax deduction even if you bought it to be used for work but then occasionally use it outside of work.

    Keep the receipt from the purchase if you have questions about whether you can deduct something for work-related expenses when you submit your taxes. Always save receipts rather than throwing them away and losing the opportunity to save money on taxes even if you can't use the item.

    Consider Asset Purchases

    Any asset that a small firm buys for less than $6500 can be written off as an expense in the year it is purchased. This still applies to you even if you haven't paid but were charged before June 30th.

    Through accelerated depreciation of capital value, larger capital purchases, such as pricey equipment, automobiles, and IT servers, can be written off for longer than a year. 15 per cent can be claimed in the first year, and 30 per cent can be claimed each year following that.

    Make Your Super Count

    When you first start out by yourself, superannuation may not be at the top of your list. But it's crucial to consider it as soon as possible. A tax-efficient approach to save money to support yourself once you stop working is through super.

    You must make your own super contributions as an employer won't do them on a regular basis for you. Adding to your super can help you save on taxes on your current salary in addition to investing for the future. Additionally, you can be qualified for the government's extraordinary co-contribution.

    For more details, view super for independent contractors.

    Feeling Charitable? How to Pay Less Tax with Donations

    Every contribution you make to a registered charity that is worth more than $2 is deducted from your taxes. The organisation should email you a receipt after your donation. Don't forget to save that until tax season. When tax season comes around, total up all of your charitable receipts and include that information in the area on "charity donations" on your tax return. But keep in mind that gifts are not tax deductible. You receive a portion of the donation back since the amount of the financial gift is deducted from your total taxable income.

    According to the rules, charitable contributions cannot be deducted on Schedule C.

    However, donations made to NGOs for promotional purposes may be recorded as a business expense.

     Minimise your Taxes with a Mortgage Offset Account

    If you have a mortgage, a mortgage offset account allows you to deduct interest from your taxable deposits in order to balance the non-deductible interest on your mortgage. Taxpayers are able to open a savings account with their lender under this arrangement. Taxpayers are charged interest on the loan, minus the sum in the savings account, as opposed to paying interest on the total amount of the mortgage.

    Use Medical Insurance Deductions

    Health insurance premiums for you and your spouse, as well as rewards for long-term health insurance, may be written off.

    The insurance can be in your name alone and is tax-deductible.

    If it makes sense, you should only do this. If you don't have private hospital insurance and earn more than $90,000 annually as an individual or more than $180,000 annually as a family, you must pay a Medicare Levy Surcharge of at least 1%. The necessary two percent Medicare Levy that the majority of taxpayers are required to pay is collected in addition to the Medicare Levy Surcharge.

    Basic private healthcare plans can be purchased for less than the levy surcharge of 1% of your gross income, which is less than the Medicare levy you would otherwise have to pay. Private healthcare may be advantageous for some persons in order to reduce taxes. It might also be worthwhile for the frequently reduced wait periods you'll receive with private healthcare, depending on your demands and medical history.

    Avoid the Hobby Trap

    Do not consider your self-employment to be a hobby because you can only deduct expenses up to your income, even though you can provide proof of income.

    Even if you make a profit, this is still detrimental.

    By maintaining accurate records, you must persuade the tax authorities that your company is a for-profit enterprise.

    Since hobbies are exempt from self-employment tax, if you are making money from dog breeding, keep it up; otherwise, it will reduce your nett income by 15.3 percent.

    Plan Ahead for Holidays

    You can reserve tickets in advance for customer visits or market research, and the money you spent on vacation can be used to support business claims, particularly if you can establish that client visits took place in the meantime.

    Add to Your Super (or Your Spouse's) to Save Tax in Australia

    Once they are deposited into a super fund, contributions to a concessional super account are subject to a 15% tax rate. This is distinct from the case when they were subject to a marginal rate of taxation, which can occasionally reach 49 percent. What kinds of concessional contributions are there that you can make? To reduce your taxes, you can make the following concessional contributions:

    •     Salary sacrificing
    •     Personal deductible contributions

    Salary sacrifices are not subject to income tax restrictions. Taxpayers who are self-employed or unsupported are eligible to contribute to their superannuation plans and take full tax deductions.

    Minimise Capital Gains and Minimise Taxes

    A capital gains tax must be paid on any sizeable assets sold during a given fiscal year, such as shares or real estate. In addition to your marginal tax rate, you will be assessed a 50 percent capital gains tax if the investment has been held for at least a year. Taxes on capital gains must be paid in the year that they are realised. Losses, however, can only be carried forwards. Prepaying deductible interest might also reduce the amount of taxes due during the current fiscal year.

    You may prepay expenses related to investments up to a year in advance. Therefore, this fiscal year, interest on investment loans and management costs are deductible. Prepaying your taxes can help you save money on taxes if you have a high tax burden this fiscal year as a result of the sale of an asset.

    If your property serves as your primary residence, or PPOR, you are also free from paying capital gains tax on that income. Your home qualifies for the principle residence exemption from capital gains tax. You must have resided in the residence in order to obtain it, or the property must contain a residence that you occupy. Find out more about lowering capital gains taxes on property used for investments and for businesses.

    Don't Include Non-Taxable Income.

    You shouldn't mention certain types of income on your tax return since the ATO deems them to be exempt or non-taxable. However, when calculating tax losses from past income years, certain exempt income may be considered. A portion of your income as well as the adjusted taxable income of any dependents you have are deductible. The following are included in exempt or non-taxable income:

    • Some Australian Government pensions, such as Centrelink's disability support payments to persons under pension age
    • Several Australian Government benefits, such as the carer's allowance and the childcare subsidy
    • Federal Police and Australian Defense Force employees' overseas pay and benefits
    • Education grants from the Australian government, including those for children under 16
    • Specific grants, scholarships, and awards
    • Lump-sum payments received as compensation for a terminal illness or work-related injury, mortgage protection, or the surrender of an insurance policy

    Meet ATO Deadlines

    If you register with a tax agent, you can file your tax returns as late as May of the following fiscal year as long as there is no tax office dispute. For everyone else, all returns must be in by October 31. You can prevent disputes and penalties by adhering to all ATO deadlines. Self-lodgers with straightforward financial situations and living conditions frequently file their taxes online with the Tax Office. Your previous year's tax return and any information provided by your bank, place of employment, government organisations, etc. will be added to the account. You'll want to wait until after that to lodge online as the Tax Office doesn't start collecting this data until the first of August.

    Use a Tax Agent

    When it comes to filing your taxes, a qualified tax agent may save you a tonne of time. On taxes and refunds, they also offer insider information and subject matter expertise. You can earn the most tax refund without getting in trouble with the ATO if you hire a tax agent to assist you with your taxes.

    Lowering your taxable income and receiving a refund at tax time will help you keep more money in your account if you're learning more about credit repair and trying to get out of debt. You can use that refund to pay off debts and repair your credit more quickly rather than sending that money to the taxman since you weren't aware of the deductions you could claim.

    Two things in life are certain: death and taxes. While investing in your physical and emotional well-being can help you live a longer, healthier life, careful financial planning and decision-making can lower your tax obligations. When it comes to taxes, everyone wants to pay less. Learning how to lower your taxable income will help you keep more money in your pocket while consolidating your debts and repairing your credit faster. You can minimise your taxable income in Australia by using our list of 15 simple methods.

    Protect your income — and your business

    A lack of sick leave can make getting sick or hurt expensive. In the event that you are unable to work, income protection insurance might assist you.

    Find out if your super fund includes income protection insurance in the package if you have one.

    Take into account other insurance policies that might safeguard you and your company, such as workers' compensation insurance and general liability insurance. For details on business insurance, go to

    1. Contribute to a Retirement Account.
    2. Open a Health Savings Account.
    3. Check for Flexible Spending Accounts at Work.
    4. Use Your Side Hustle to Claim Business Deductions.
    5. Claim a Home Office Deduction.
    6. Rent Out Your Home for Business Meetings.
    7. Write Off Business Travel Expenses, Even While on Vacation.
    Further, reduced tax rates could boost saving and investment, which would increase the productive capacity of the economy. In other words, economic growth is largely unaffected by how much tax the wealthy pay. Growth is more likely to spur if lower income earners get a tax cut.
    High marginal tax rates can discourage work, saving, investment, and innovation, while specific tax preferences can affect the allocation of economic resources. But tax cuts can also slow long-run economic growth by increasing deficits.
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