As a freelancer, bookkeeping can sometimes become very difficult. Unfortunately, a lot of people aren’t really sure about what sort of things they should be keeping records of and what is unnecessary, which tends to lead to one of two situations:
- A lot of time is wasted on keeping records that simply aren’t necessary. This time could be better spent on other aspects of the business.
- The records that are kept simply aren’t good enough, which can lead to problems when it comes to submitting a tax return. Most freelancers only make this mistake once or twice.
As you can see, understanding what your record keeping and tax requirements are as a freelancer is very important.
First, consider how the ATO sees you:
If you are a freelancer, the Australian Tax Office (ATO) will see you in one of two ways. If you only freelance part time and don’t earn very much, then your freelance work may be seen as a hobby, which means that you don’t have to pay any tax. However, if you earn a decent amount, and undergo the freelance activity with the purpose of making money, you will be classed as a business, and will have to pay taxes.
Unfortunately, it can be difficult to decide how the ATO will see you. Usually, your activity will be defined as a hobby if it is largely for pleasure, if it makes you money to cover the costs of tools or materials, and if it is not undertaken commercially. As soon as you start doing something with the aim of making a profit or on a commercial scale, you will be classified as a business. If you are unsure, contact the ATO for a private ruling.
If I decide that I’m a business, what records should I keep?
There are a lot of things that you should be keeping records of as a freelancer. Some of the more important things include:
- Income records – It is extremely important to keep a clear record of any income that you have over the course of the year. Keep records of what the income was for, who it was from, and whether or not any tax has been paid on it.
- Costs – Keeping clear records of all of your business costs will allow you to claim them back on your next tax return. Make sure that you not what each purchase was, what you bought it for, and how much it costs. Keep tax receipts as proof.
- Any wages that you pay – Although this probably comes under the costs category, it is worth emphasising the importance of keeping records of any wages that you pay, as you will need this information when it comes time to complete your tax return.
So it really isn’t that hard?
No! Despite what a lot of freelancers think, bookkeeping really isn’t all that hard. As long as you keep clear income and expense records with as much information as possible, you will be fine when it comes to submitting a tax return. If you have foreign income then it does make things harder, but still not as hard as you might think.