12 Easy Ways to save on taxes for the Self-Employed in Australia

Being self-employed is a tough ask, as one needs to market themselves, entail costs, perform services and then handle tax filings too.

Taking on risks and costs that are usually handled by other people when working on a job is tough.

Sometimes they do not get enough customers or fail to generate income and need to prove the value of their offerings.

1. Set up a Tax Savings Account other than Your Main Account

After being self-employed, one should have a separate savings account for tax savings and for business transactions. 

Having different accounts helps a great deal in handling business and personal stuff.

Some self-employed professionals have one account for everything but it is evident that the tax money, income, and expenses, can get lost in the fray.

Setting up separate accounts will keep it hassle-free in the long run.

With every check being deposited, keep 15-20% of income to the separate savings account.

Calculate the tax payment at the end of the year and then write a check out of the account.

2. Claim Operating Expenses

Operating expenses are revenue expenses since they help generate income, and can be claimed every year.

One can include salaries, wages, allowances and bonuses in the calculation along with ad expenses, electricity, phone, travel costs etc.

3. Prepay Some Expenses This Year to Reduce Taxes 

You can pay part of the taxes in advance and you will save yourself from the hassle of paying them when you might not do as well.

You can prepay on business loans a year in advance along with office and equipment lease payments.

You can prepay subscriptions, seminars, telephone and IT services and the like.

By prepaying, you can even apply for a tax deduction while also getting discounts for paying in advance.

You might find some service provider finding ways to boost sales results before the end of June.

4. Consider Asset Purchases

A small business that purchases any asset priced at less than $6500, can claim costs in the actual year itself.

This is applicable even if you haven’t paid but have been invoiced before 30 June.

Larger capital acquisitions can be claimed for more than one year, including IT servers, cars and expensive equipment via accelerated depreciation of capital value.

One can claim 15 percent in the first year and 30 percent each year after the first year.

5. Bite the Bullet and Do Away with Bad Debts

A bad debt is a taxable sale that is unpaid for more than 12 months with no chance of recovery.

You must have noted that there have been bad debts and are written off.

Speak with the accountant about the GST impact too.

6. Claim for Entertainment 

You can buy tickets for your favorite sports team and then show it as business expenses.

But there are numerous IRS restrictions for claiming entertainment expenses for the business.

One must conduct business with someone you are watching the game during the event, before or after the event.

Even if the expenses match up to the criteria, it is 50% deductible.

7. Use Medical Insurance Deductions

One can deduct premiums for health insurance for you and your spouse along with premiums for long-term insurance for health care.

The policy can be in your personal name and deductible for taxes.

8. Avoid the Hobby Trap 

Do not deem your self-employment as a hobby, since although you can furnish your income, you can deduct expenses only for your income amount.

Even if you earn a profit it is a detriment in this regard.

You have to convince the tax guys that yours is a for-profit business by keeping good records.

If you are earning from your hobby of breeding dogs, then keep it that way since hobbies are not liable to self-employment tax, else it would eat into 15.3% of net income from the same.

9. Turn Charity into Business Expenses

As per rules, one cannot deduct charitable contributions on Schedule C.

But if you give money to NGOs for advertising, it can be listed as a business expense.

10. Use Superannuation Allowance 

Use your superannuation allowance of nearly $25,000 if you are aged 60, and the $35,000 if aged above 60.

If your spouse works for the business, you can even contribute to the limit again, but allow other employer contributions that you receive too.

If you are paying employee superannuation guarantee contributions before June 25, then the amount gets to the superannuation fund account on time and the same amount can be tax deductible this year.

11. Plan Ahead for Holidays

You can book tickets for your future client visits or for surveying the market in advance, and the amount spent in holidays can be shown as business cases especially if you can prove that client visits happened during the interim.

12. Car Expenses

Keep records of the mileage of your car along with the purpose for each trip taken, without taking personal tours into account.

Calculate tax deductions using standard mileage rate or stick to actual expenses.

Mike Watson is working as an Evangelist at Universal Taxation. He is also a piano player and lives in Western Australia. Big fan of Geelong Football Club, tax advisor and food lover. You can follow him on Twitter.