Back in our parents’ day, working two jobs meant an around-the-clock commitment.
These days, it’s become a lot easier to juggle multiple engagements. You can have a day job in the office to guarantee a regular flow of income and do some small copywriting jobs on the side.
However, as easy as it might be now to juggle a full-time job and work as a copywriter in your spare time, you may not have considered the tax implications. This is a mistake that can leave you out of pocket by several thousands of dollars when your tax bill comes in.
How to plan ahead for your tax bill
In the first year of operating an income-earning side business, you probably won’t be set up to pay quarterly tax instalments. This means you’ll most likely have tax owing after the ATO calculates the tax payable on your total income.
The ATO adds the income from your main salary and side business (not to mention any other revenue earning streams like investment properties and shares) to determine the applicable tax rate. If the latter pushes you into an even higher tax bracket, you’ll also be taxed at a higher percentage rate.
To avoid a nasty bill shock at the end of the financial year, we recommend you plan in advance and set aside the right amount of money every month to cover your tax bill.
To figure out how much tax you should set aside, you’ll need to estimate how much money you’ll earn for the year from both jobs. This will tell you which income tax rate applies and you can work backwards to find out how much money to set aside. A qualified accountant can help you with this if you’re not confident in your projections.
If you earned $80,000 from your full-time job, you would have had roughly $19,200 withheld as tax by your employer. This works out to be a tax percentage of about 24 per cent.
If you also earned $40,000 from copywriting jobs and paid no tax on that income during the year, then your total income for the year would be $120,000, which pushes you into a higher tax bracket.
This means that not only will you have tax owing for your second business, but you’ll also have to pay additional taxes for your full-time job.
The total tax you’d owe for the year would be $34,747, which means you’ll need to pay an extra $15,547 in tax. To plan for this debt in advance, you’ll need to set aside 38.9 per cent of any money you earn from the side business.
The good news is that you won’t have to deal with an annual tax bill from your second year of being a copywriter. That’s because the ATO will have become aware that you’re earning additional taxable income and it will start sending you quarterly tax instalments. The bad news is that you’ll still have to get into the habit of setting aside money every month to pay that quarterly tax bill.
Tax deductions for your startup
Have you already been lumped with a huge tax bill due to your secondary income? Make sure that you’ve claimed all of the tax deductions that are relevant to either job.
Generally, any expenses you incur that are directly related to earning your income can be claimed as a tax deduction. For copywriters, this includes meals and travel, training and self-education, work tools (computer, monitor, keyboard, etc.) and home office costs.
However, some of these expenses – such as electricity, internet and your computer – might be both work-related and for private/domestic use. For these sorts of expenses, you can only claim a tax deduction for the work-related portion.
If you’re using your car for both domestic use and travelling to or from copywriting jobs, you can claim the business portion of your car expenses (based on logbook records of the car’s usage). This can include ‘extra’ costs like vehicle depreciation, fuel, servicing, insurance and registration.
Superannuation for freelancers
You should be mindful of properly managing your superannuation and seek the right advice, particularly if you’re self-employed full-time, as there’s no one contributing to a fund on your behalf. From a tax perspective, if your taxable income is over $37,000, then contributing to your super could be a tax advantage, as you’re able to claim contributions as a tax deduction to help reduce your taxable income.
This article is of general nature only. You are advised to consult a qualified tax agent to get advice relevant to your own situation.
Liz Russell is a senior tax agent with etax.com.au
This article was originally published in writerscentre.com.au
Etax.com.au is Australia’s number one online tax return service. Specialising in online taxes since 1998, etax.com.au enables most individuals to complete their tax return in less than 15 minutes. Each tax return is checked twice by qualified accountants for accuracy and extra deductions prior to lodgment, offering a higher level of support and expertise than at most tax agent offices plus the timesaving convenience of a 100 per cent online service.