How to Pay Less Tax

It’s coming up to the end of the financial year here in Australia, when our minds turn to filing our taxes (if you’re not thinking about that yet, here’s a gentle reminder!). For YEARS I was one of those people who chucked all my receipts in a shoe box and waited until the end of the financial year to do anything with them.  OK, let’s be honest here, I usually procrastinated until MONTHS after the end of the financial year.  Can anyone relate??

What I found when I did that, was that I was missing out on things I could have claimed, and I wasn’t maximising the deductions that I was eligible for; in short, I was LOSING MONEY… Hands up who likes losing money. No.  I didn’t think so.

A while ago now, when I got serious about my business and becoming as profitable as I could be, I started keeping much better records, AND recording all my expenses much more regularly.  This is one of the things I teach my Business Boost students (shout out to those students who are already prepared for End of Financial Year), and its something that I learned from my mentor too: “What gets measured, improves”.

Last week, I responded to a Facebook post from a brand new artist, who mentioned that she’d only done 2 paid jobs, but that she had spent a fair bit of money on makeup and wanted to know what she could claim on her taxes.  So this week, I’ll give you a bit of a run down on what you can claim, and how to make sure you are being as profitable as possible.

 

Hair by me. Photo: Kristina Wild Photography

 

But first:

DISCLAIMER:  I am NOT an accountant, financial adviser or a registered Tax Agent.  This blog post is NOT meant to be tax advice, and you should consult your own registered tax agent or accountant for information specific to your situation.  Any information here is provided as general information only.  Also, I am located in Australia, so depending on where you live, you may be subject to different tax laws.  Again, please visit your accountant to discuss your business.

 

KEEP GOOD RECORDS

The key to making things easier at the end of the financial year is to keep good records.  Its so much easier if you do this regularly.  I like to do my accounts and bookwork weekly, and then, at the end of the month I create a monthly summary.

So, at the end of each week I will record all the money I have received that week, whether that be deposits (booking fees/retainers) and pre-payments I have received from brides and personal clients, or payments for invoices sent out for commercial and editorial jobs.  I actually like to record each TYPE of income, Ok, I’m a bit of a stats nerd, but I find it useful to know what percentage of my income is coming from brides, commercial jobs, formals and educating.  This helps me to know where to focus my marketing efforts too.

Secondly, I record all my expenses.  Some of my expenses are regular, and are set up as direct payments from my bank account (eg. My monthly insurance premiums) while others vary each week or month. (eg. Buying makeup or stocking up on disposables.)

 

EXPENSES – What can you claim?

There are two types of expenses:  Fixed and Variable.  As the names suggest, your fixed expenses are the same every week/month or year, however often you pay them, and your variable expenses will vary, usually depending on how busy you are.

Here’s some examples for each:

Fixed Expenses:

Rent of premises: Either a salon space, or, if you see clients in your home, you may be able to claim a portion of your rent or mortgage payment.  Also if you have an area of the house set aside as your “home office” you may be able to claim.

Insurance:

Phone:  (you may claim the portion of your phone used for business)

Internet: (same as phone)

Website hosting:

Domain name registration:

Subscriptions: (software used for your business, Timely, Xero, Bridal Beauty Pro App etc)

 

Variable Expenses:

Makeup and Hair products

Disposables

Parking

Tolls

Education

Marketing materials

Advertising

Office supplies

Bank fees

 

Motor Vehicle Expenses:

If you are a mobile freelancer, and you use your car to get to jobs, you may claim a portion of the costs of running your car.  Here in Australia, there are several ways to work this out.  You can claim 68cents per kilometre driven (up to a maximum of 5000km per year) OR you can claim a percentage of all your expenses under the logbook method.  This involves keeping a log book for 12 weeks, with a start and end odometer reading, and working out what percentage of kilometres driven was business related and what was personal.  For example, if your business use was 76% you may claim 76% of all expenses for your car, petrol, servicing, tyres, insurance etc.  If you are planning to use this method, my best tip is to start your logbook at the beginning of a busy period (like, wedding season!) when you will be using your car for work a lot.  You can find out more about claiming car expenses HERE(Australia only)

Makeup by me, Hair by Mickeela, Photo by Tom Hall

OTHER THINGS TO CONSIDER:

TAX.  What’s that saying?  There are only two things in life that are certain, Death and Taxes.  While its true we all have to pay taxes, the key is to do everything you can to claim all your eligible deductions, keeping as much money as you can in YOUR pocket, and not the government’s!

If you have been in business for a while, and have filed taxes for your business before, you may receive Activity Statements from the ATO asking you to pay your taxes quarterly. You may also choose to make voluntary payments (pre-payments) into your own Tax Account with the ATO.  This is what I do, and generally what I recommend, if you’re anything like me, and spare money burns a hole in your pocket!  I know some people have a separate interest earning bank account where they put their money for tax, but frankly, I don’t trust myself!

 

GST/VAT/Sales Tax. Depending on where you live, once you earn over a certain threshold you may be required to register for GST and pay an additional tax.  GST in Australia is payable once you are earning $75,000 in a financial year – that’s earnings, not profit.  The good news is, once you are registered you may also claim back the GST on any business expenses – so make sure you keep your receipts!  Some freelancers choose to register for GST anyway, this is something to discuss with your accountant.

 

Retirement/Superannuation/401K.  I’ve said it before and I’ll say it again.  You MUST consider contributing to your retirement plan.  Whether you are paying money into your personal Superannuation account, or investing that money somewhere else (that you absolutely can’t access until you’re old), just make sure that you are saving.  If there were ONE legacy I could leave, it would be for freelance makeup artists and hairstylists to be able to live well in their retirement because they took this piece of advice from me and acted on it! Check with your superannuation fund – they probably have a facility where you can BPay into your account.  I do this Every. Single. Week.  I add up my income, subtract my expenses, and pay 10% of whatever that profit figure is into my Super before I even pay my rent. As freelancers, and women, most of us will retire with no where near enough money to live the lifestyle we want, unless we take action on this now.  The earlier you start the better. (You can thank me when you’re 65)

 

WHAT ABOUT IF I’M MAKING A LOSS?

If you are just starting out, I would totally expect that you would make a loss your first year (maybe even two years) in business.  It takes TIME to become established as a freelancer, and getting your kit and your business set up is quite expensive.  If you keep good records, and you have a good accountant, you should be able to carry your loss forward to the next year, or whenever you are actually making a profit.

The key here, as I said right in the beginning, is to be keeping good records.  If you are keeping good records you will know where your business is at any one time.  In such an up and down, seasonal industry, you’ll know which months are busy for you and which are quiet, so you can plan your saving and spending accordingly. Lastly, you may be able to save some money up and take advantage of the end of financial year sales!  And who doesn’t love a makeup bargain???