Tax tips for freelancers
Scary. Confusing. Complicated. These were just some of the words Safreans who attended our recent Gauteng South coffee club used to describe tax.
We invited Nicole Holborow-Browne, accountant and business coach at nhb.business, to join us at Loof Coffee in Birnam and help demystify the ‘black hole’ that is freelancer tax.
As freelancers, most of us operate as sole proprietors and this is what can make tax a little complicated, especially if you don’t have a good system in place to keep track of your income and expenses.
It’s also important to understand what you can and cannot claim as a tax deduction. “You are your business so where you end and where your business starts – that’s where the confusion comes in,” says Nicole.
She offered 12 of her top tax tips for freelancers:
1. Look at your freelancing career as a business – don’t hide behind the creative!
2. If you’re starting a business, it is a good idea to start off as a sole proprietor and once you’re paying R20 000 in tax per year, look into registering a company (which comes with its own set of tax rules).
3. Open a separate bank account for your business – this will help you to keep a clear and simple record of your business expenses and separate them from your personal life.
4. Use an invoicing system – so you’ve automatically got a record of all your invoices and income received (you only pay tax on income received). It also looks more professional to your clients. “It comes back down to the fact that you’re running a business. And there are free solutions out there so cost is not an excuse anymore,” adds Nicole. Wave is one such solution.
5. You must also keep a record of all IRP5s issued by clients (chase them for a copy if needs be) because you don’t want to pay tax on the same income twice.
6. Remember, you can only claim expenses in relation to income.
7. Be fair – when splitting costs between business and personal (e.g. cell phone) and make sure you have the proof to back it up. A good rule of thumb is not to claim 100% of an expense (e.g. bank charges).
8. Keep all your receipts and proofs of payment – if you don’t want to file your paperwork regularly, at least get a box! Note: A statement is not considered a proof of payment.
9. Keep a logbook – to record all your car expenses, including petrol, tolls and parking, motor vehicle depreciation, and interest on your car repayments.
10. You can only claim expenses for a home office if it is a totally separate area (i.e. a different room or building; not a common area) and you must work out the % cost (e.g. water, electricity) based on the square meterage of the office in relation to the entire property (not the house).
11. If you buy assets for your business that are more than R7500, you can only claim the depreciated value as a deduction. For an asset less than R7500, you can claim it in its entirety.
12. For medical aid, be aware that only the main member can claim the cost on their tax return. It may also be more beneficial if they claim your medical expenses not covered by the medical aid (which require a corresponding invoice and proof of payment).
At the end of the day, it boils down to this: “You might not like doing it, but you have to do it! And if you don’t do the work, you will overpay your tax,” says Nicole. She adds that it is well worth hiring an accountant, either on a monthly retainer or just for financial year-end, to help you by analysing your summary of income and expenses and ensuring that you’ve listed all the deductions to which you are entitled.