Australian Taxation Office: what freelancers can claim this tax time

With the end of the financial year fast approaching, experts are sharing tips on what tax claims sole traders can make to maximize their tax returns this year.

Recent research presented by digital accounting service Hnry showed that sole traders lose on average over $5500 in unclaimed expenses each year.

A sole trader is defined as someone who is self-employed, runs their own business, and operates their business as an individual.

This can range from freelance writers, wellness professionals and contract tradesmen.

Data shows that only 64% of sole traders claim all the business expenses they are entitled to. 31% said they had requested some expenses and 5% said they had not requested them at all.

When those who weren’t claiming all their expenses were asked, 33% admitted they weren’t sure what they were entitled to claim and what they couldn’t claim, while 35% said the administration was blocking them .

Some of the things sole proprietorships can claim this tax season range from digital marketing tools like email marketing and analytics tools, investments made to go green like recycling programs, and eco-friendly supplies.

One statement that many may not be aware of concerns music subscriptions and equipment costs for businesses such as retail stores or bars.

For those who work outside for long periods of the day, if you purchased sun protection items such as sunglasses, sunscreen or hats, you can request a refund.

Hnry’s managing director in Australia, Karan Anand, said their clients often hear how difficult tax time is.

“We often hear how difficult it is for sole traders to understand what expenses to claim, how to present the expenses and how to actually proceed,” Mr Anand said.

“What you can see from the statistics we have shared is that there are a surprising number of sole proprietorships that are not claiming expenses and leaving a lot of money on the table. The main reason (we were given) was that the calculations were too complicated.”

Mr Anand advises thinking smart when buying things for your business and not buying something “just for a tax cut”.

“Don’t spend your money just because you think you’ll get a tax cut for it. Make that expense make sense from a business perspective.”

This advice comes after the Australian Taxation Office (ATO) released its tax “hit list” and announced it will keep a closer watch on those who misreport work-related expenses by not including all income during housing and anyone who inflates property rental requests.

While these are the most common mistakes made by taxpayers and can be genuine mistakes, Rob Thomson, deputy commissioner of the ATO, said some people make these mistakes on purpose.

“These are the areas where people are most likely to make mistakes, and while these mistakes are often genuine, they are sometimes intentional. Take the time to get the right return,” she said.

The ATO is also advising people not to rush to file their tax return and those with multiple sources of income to wait until it is all pre-filled.

“We see a lot of errors in July where people forgot to include interest from banks, dividends, payments from other government agencies and private health insurers,” Thomson said.

The 5 most common expenses incurred by sole traders, according to Hnry are:

Bank fees: These are primarily business transactions and do not include account maintenance or overdraft fees.

Subscription Fees: For any recurring subscription costs on company products such as relevant online magazines, software costs or licensing costs.

Equipment purchases: Mainly for work essentials like software or cell phones. However, if used for both business and personal purposes, you can only claim the business portion of the cost.

Cell phone bills: It can only take a percentage of business use.

Cost of goods sold: For materials used in the work or services provided.

The 5 main expenses that cannot be claimed by individual businesses:

Personal living costs: These range from household bills, groceries or childcare costs.

Give yourself a salary: For sole proprietorships, all business income is considered personal income.

Home renovations: Increasing property value through home renovations cannot be deducted immediately.

Private health insurance premiums: Health insurance premiums cannot be deducted as business expenses.

Fines and sanctions: Any fines imposed by the government, such as parking and traffic fines, are not deductible.

Read related topics:Tax time

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