What new freelance writers need to know about tax | Australian Writers’ Centre blog

Back in our parents’ day, working two jobs

indicated an ongoing commitment.

Nowadays, it’s ended up being a lot easier to manage several engagements. You can have a day job in the office to ensure a regular flow of earnings, and do independent writing tasks on the side.

Nevertheless, as easy as it may be now to manage a full-time task and work as a freelance writer in your spare time, you might not have actually considered the tax implications– an error that can leave you out of pocket for some countless dollars when your tax expense can be found in.

Writing as a hobby
Generally, earnings you earn from a hobby isn’t taxable. The trick is finding out whether what you’re doing is a hobby or a company.

The Australian Tax Workplace defines a hobby as a past-time or pastime performed in your spare time for recreation or enjoyment, and it’s possible to get money for activity and still have it classified as a hobby.

It comes down to what your objectives are when performing that activity. If you run an individual blog site and take place to earn a little bit of money through Google advertisements, it’s most likely safe to call it a pastime. However, if you send your composing to paid publications or get in touch with people to sell your stories, those are not pastime type activities and strongly recommend that you’re running a business.

If you’re intending to sustain or increase your income from an activity, and this is reflected in your actions, then that likewise recommends an organization rather than a pastime.

Let’s say you didn’t state the $2,000 income from your composing “hobby” in your first year. Next year, you make $5,000 from your writing. What might happen is that the ATO audits the publisher and finds the unclaimed $2,000 billing? The ATO then chooses to investigate you, at which point you’ll have a difficult time arguing that the $2,000 was from a pastime when you continued to generate income from the very same activity the following year. The resulting ATO assessment might see you paying back tax loan from previous years on top of an unpleasant ATO penalty.

If you’re uncertain, your best course of action is disclosing the income and being above board with the ATO. It’s better to focus your energy on growing a legitimate company on your own than losing sleep over a possible ATO audit.

How to plan ahead for your tax bill
In the very first year of running an income-earning side service, you won’t be set up to pay quarterly tax installments, which implies you’ll more than likely have tax owing after the ATO computes the fee payable on your overall income.

The ATO includes the earnings

from your chief salary and side business (not to mention any other income earning streams like investment residential or commercial properties and shares) to identify the proper tax rate, and if the latter presses you into a higher tax bracket, you’ll likewise be taxed at a higher portion rate.

To avoid a nasty expense shock at the end of the financial year, we suggest you plan in advance and set aside the right amount of money monthly to cover your tax bill.

To find out how much tax you must reserve, you’ll need to estimate just how much cash you’ll earn for the year from both jobs. This will inform you which earnings tax rates use, and you can work backward to find out how much loan to set aside. A qualified accounting professional can help you with this if you’re not confident in your projections.

If you made $80,000 from your full-time job, you would have had roughly $19,200 kept as the tax by your employer. This exercises to be a tax percentage of about 24 percent.

If you likewise made $40,000 from your freelance writing and paid no tax on that income throughout the year, then your total revenue for the year would be $120,000, which pushes you into a higher tax bracket.

This indicates that not just will you have tax owing for your second company, however you’ll also need to pay extra fees for your full-time job.

The overall tax you ‘d owe for the year would be $34,747, which implies you’ll require to pay an additional $15,547 in charge for the year. To prepare for this financial obligation beforehand, you’ll need to set aside 38.9 percent of any loan you make from the side organization.

Fortunately is that you won’t have to handle a yearly tax expense from your second year of being a freelance author. That’s because the ATO will have realized that you’re making additional taxable income, and it will start sending you quarterly tax installments. The bad news is that you’ll still need to enter the routine of reserving cash each month to pay that quarterly tax expense.

Tax deductions

for your startup
Have you already been lumped with a considerable tax expense due to your secondary income? Make sure that you’ve claimed all of the tax reductions that are relevant to either job.

Typically, any expenses you sustain that are straight related to making your income can be declared as a tax reduction. For writers, this includes meals and travel, training and self-education, work tools (computer, monitor, keyboard, etc.) and home office costs.

However, some of these expenditures– such as electrical power, Web and your computer– may be both job-related and for private/domestic usage. For these sorts of costs, you can just declare a tax reduction for the work-related part.

If you’re utilizing your own cars and truck for both domestic and startup usage, you can claim the business portion of their automobile expenditures (based on logbook records of the car’s use), which can include “extra” expenses like car depreciation, fuel, servicing, insurance, and registration.

Liz-Russell-Etax-AccountantsLiz Russell is a senior tax agent with etax.com.au.

About etax.com.au
Etax.com.au is Australia’s primary online tax return service. Specializing in online taxes since 1998, etax.com.au allows most people to complete their tax return in under 15 minutes. Each tax return is checked two times by qualified accountants for precision and additional reductions before lodgment, using a higher level of support and competence than at a lot of tax agent workplaces plus the time-saving benefit of a 100% online service.

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