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Tips for Freelance Tax Preparation

 

Individuals who have been utilized in conventional work settings are thinking that it’s essential to enhance or supplant their revenue sources. While some intentionally exit their positions, others might be the result of cutting back and cutbacks. In any case, numerous who hold energy for their calling discover options, for example, redistributing, to get back in the work power. It is imperative to remain side by the side of tax laws that sway independently employed people. Here are three significant tax contemplations.

Tip #1 Reduce Taxable Income

When documenting salary taxes, numerous independently employed entrepreneurs are astounded to find that they might have brought down their taxable pay and paid less in taxes during the year. It is imperative to have an arrangement set up that incorporates tax decrease systems. For instance, one frequently missed strategy is retirement investment funds. Adding to a Self Employed Pension Plan is an excellent method to gather non-taxable investment funds and keep a more significant amount of the cash you acquire. Talk with a tax bookkeeper to guarantee that you are boosting benefits around there.

Tip #2: Remit Estimated Tax Payments

Pay tax retentions are not removed from instalments that you get as a consultant. Yet, because no tax is retained doesn’t imply that the administration isn’t searching for you to send them in. The top worry for most freelancers is the amount to cover in assessed taxes and when to send them in. To decide the measure of taxes due you should figure your gross pay. A salary tax adding machine and tax schedule are assets that assist you with assessing sums and make convenient instalments. Furthermore, if state and nearby taxes apply, you should transmit instalments to them also.

Tip #3 File the Right Tax Forms

Freelancers can decide to work as one of a few business elements including Sole Proprietor, Partnership, Limited Liability Company, “S” Corporation, or “C” Corporation. Every one of these choices utilizes an alternate tax structure for revealing purposes so ensure that you know which one to apply.

Filling in as a free-lancer has numerous advantages, including adaptability and boundless salary potential. By the day’s end, it isn’t the amount you make that is important. It is the amount you can reinvest and multiply to make the way of life that you want.

 

Incredible Tips for Freelance Tax Preparation

Setting your work routine and working where you favour may seem like a definitive method to get by with opportunity and portability. Each openwork door may have difficulties, and this is genuine regardless of whether you work in an independent organization. The means to a fruitful separate encounter might be more straightforward than you envision, and planning taxes might be the ideal method to help other people and bring in cash on your terms.

  1. See how taxes collected

Paying taxes is extraordinary on the off chance that you work for yourself rather than being a representative and getting a W-2 structure from an organization. You may get a 1099-MISC design as a record of your profit, and this is the thing that you should submit when you document your taxes. Else you have to follow your pay.

  1. Track your costs and pay

You should think about your independent work as a business, and this implies that you should keep a detailed record of your pay and working costs. You should keep receipts, solicitations, and other relevant data composed consistently. Keep these records in a protected document in your office for when you begin to set up your taxes.

  1. Make standard, assessed tax instalments

Representatives can have taxes retained from their checks. However, it would be best if you approached the lead in setting tax instalments if you work independently. Falling behind can prompt risky budgetary conditions, and you might be confronted with punishments if your tax instalments fall behind also. Fortunately, you can make online instalments, and this can dispose of the weight of concocting a massive whole of money when your return is expected.

  1. Comprehend your derivations

Costs of doing business come in numerous structures, yet real deductible costs are described as being vital and typical for the sort of business being referred to. The operational expense may incorporate protection, lease, promoting, utilities, and individual vehicle use.

  1. Post a gaining benefit

Posting a misfortune every year might be cause for the IRS to see your business tries as an interest rather than an approach to gain salary and make a benefit. This may prompt expensive reviews, so you should practice care as you direct your independent work. However long you produce a decent measure of income and have separate accounts, you ought to be protected. Check with your tax proficient.

Taxes are a yearly event, yet having an arrangement can keep this classic piece of procuring a living from wrecking your fantasy about working freely. Work with experts and buy the apparatuses essential to keep excellent records, like Quicken, and plan great tax reports, perhaps H&R Block Business Edition.

Do you think you may qualify for these deductions? Call BOA & Co. accountants in Chatswood on 02 9904 7886 and our SMSF specialist will be pleased to assist you.

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five small business tax deductions when claim tax

Five Small Business Tax Deductions When Claim Tax

 

Running a business is not easy since the more you earn an income, the more expenses you incur most, especially when paying taxes. However, some universal rules help the business to claim a tax deduction on various costs that the company incurs in the long run. Some may be easy to detect while others are somewhat hidden. Well, that is why we are here for you! This article will discuss the top five tax deductions to keep in mind, which is not easy to identify.

 

  1. Interest

Although it is well known that one has the right to deduct money off the interests paid on a borrowed loan, there are some hidden interests that you can also deduct. These interests are not well known by some people. For example, any claims that your business incurs and is not paid by the next time you file for tax (30th June) are deductible.

In the case where you loan your business money from a credit card or use a personal loan, you can claim a deduction in the income tax. This is because the interest cost will not be part of the business but from your income.

 

  1. Depreciation

Assets are not always guaranteed to appreciate over some time. Thus, if your assets depreciate, save some bucks by claiming for a tax deduction. There is a tax rule governing small business owners who own assets in Australia. If the asset has a value of around 6500 dollars, you can claim a tax deduction or write off.

 

  1. Motor vehicle

Again this is another area where the small business owners can benefit from. You can depreciate the vehicles in your company ranging from vans, trucks, and other personal vehicles. The deduction is made as follows;

100 per cent of 5,000 dollars of the actual costs and 15 per cent of the remaining cost amount in the year of purchase. Also, note that if the vehicle’s price falls under the 6500 dollars, then the whole amount will be written off.

An example

If you bought a business van at 14000 dollars, the first deduction you will receive is 4,200, calculating it with 100 per cent.

 

  1. Trading stocks

How often do you take stock in your business? Did you know that you can get some tax deduction from the stock available in your company? The stocks include any products manufactured, sold, and even items for resell in the company. If there any that are lost, damaged, or not in use before the next tax day, you can write it off from all the stock in the company.

How is a deduction made?

If the stock value in the company depreciates or appreciates with around 5000 dollars, you need to figure out the amount the stock changes with before the following tax date. If the stock’s value has appreciated, then the extra money is calculated as an income, and you will be taxed. However, if the stock depreciates, then you can file for a tax deduction.

How do you calculate the stock’s value at the end of the year or the tax date?

The value you bought the stocks at, the current selling, value the stocks are at, and any value of maintenance incurred.

 

  1. Bad debts

This happens when customers fail to settle their debt. If you have sold out services or products to a customer(s) and fail to pay the payment, then you can file for a tax deduction. A debt is calculated as a bad debt if it stays for about 12 or more months before being settled, and there is no sign of settlement.

 

Conclusion

These are the top five areas where you can file for a tax deduction if you have a small business. As you can see, these are some of the expenses that are quite difficult to figure out, especially if you are not keen. For example, you don’t have to pay for tax on stocks that have depreciated or damaged.

 

New Standard

The Australian Tax Office has released its standards to make things easier for a small business deduction. There is information on the website, including how to take advantage of these new offerings.

Do you think you may qualify for these deductions? Call BOA & Co. accountants in Chatswood on 02 9904 7886 and our SMSF specialist will be pleased to assist you.

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Can Business Loans Be Written Off?

 

Acquiring a loan to finance or rather boost business is quite common among different business owners. However, one needs to be cautious when taking the loan and the kind of loan you take since the financial flow in a company is also affected by taxation. This brings us to the question whether all the business loans are tax-deductible or not. For example, when you take out a loan to finance your business.

This kind of loan is preferred by the majority of big companies considering they are long term loans that are also charged at lower interest rates compared to the short term loans.

However, different states have different tax deduction rules that revolve around the kind of loan you take. We are going to discuss how a loan for a business is taxed or tax deducted in Australia.

ATO also referred to as Australia Taxation office agency is the statutory agency and the only principal departments involved in revenue collection in Australia. We will review some of the frequently asked questions regarding loan and business, and how ATO views the kind of loans.

 

Q&A

Q1: Can a business loan be written off?

All the money or expenses you incur in the business to keep it running and growing are deductible. This is because this is not an income for the company but rather an expenditure (“loss”).

A:

When it comes to loan cases, not the entire money you borrow from the lender will be tax deducted. Meaning, only the loan that involves activities that earn the business an income are deductible. Or if the money is used to cater for expenses and the income can be traced.

If the loan is used to fund activities that do not earn the business a payment, then only part of the loan will be deducted, and in most cases, it’s the interest.

Let’s break it down

If your loan involves paying back an interest accrued as a result of expenses for running a business, then the interests are written off when paying the tax.

But, if the money or the interest accrued was as a result of personal fulfilment, perhaps a trip to Dubai, then none will be written off. This is because this is not a business liability but personal.

 

Q2: Is the loan a taxable income?

A:

This is determined by the lender and the kind of loan you take. Usually, take out loans, also referred to as long terms loans are the kind of loans you take without necessarily involving collateral. Such loans are not included in tax income books. This is the money you agree with the lender to pay after a specific period.

But, if part of the loan is written off or forgiven, then the forgiven amount of taxable. For example, if you had borrowed 30,000 dollars and the lender forgives you 5,000, then the 5,000 dollars is included as taxable.

However, if the loan is short term and involves collateral such as from a bank or online lender, then the type of loan will be taxable.

 

Q3: Is a loan repayment a business expense?

A:

No! This is because you are borrowing the money to run or finance your business. It does not matter the kind of expense you pay with the loan as long it is related to your business or any other business. So, paying back the loan to the lender is classified as business expenses that you will incur. However, if the loan has incurred interest, then the interest amount is categorized as an expense.

 

Q4: Which expenses are written off?

A:

Other expenses that are tax-deductible in business are;

  • The credit card interests
  • Incentives
  • Tax preparation expenditure
  • Education fee
  • Health care tax
  • Professional fees and insurance payments

 

Conclusion

Before you take a loan for your business or personal use, these are crucial details that you need to know about. The information will guide you to determine the right loan that will work for your business. For example, take out unsecured loans are some of the best loans to take for boosting the company since they are tax-deductible.

New Standard

The Australian Tax Office has released its standards to make things easier for Business Loans Written Off. There is information on the website, including how to take advantage of these new offerings.

Do you think you may qualify for these WRITTEN OFF? Call BOA & Co. accountants in Chatswood on 02 9904 7886 and our SMSF specialist will be pleased to assist you.

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capital gains tax

What to know about Capital Gains Tax (CGT) and How to Calculate It.

The vast majority of property investors pay Capital Gains Tax (CGT) on a rental property when they sell, or dispose, of it. So it’s important to understand what is CGT and how it is calculated. In this post, we will find out:

  1. WHAT IS THE CAPITAL GAINS TAX?
  2. HOW MUCH IS IS THE CAPITAL GAINS TAX?
  3. HOW TO CALCULATE YOUR CAPITAL GAIN?

What is Capital Gains Tax?

Capital Gains Tax was introduced in Australia in 1985 and applies to any asset you’ve acquired since that time unless specifically exempted.

 

According to the Australian Tax Office, a capital gain or capital loss on an asset is the difference (the gain) between what the property was the cost to you (we call this Cost Base) and what you receive when you dispose of it (we call this sale to proceed).

 

Tax is levied on again made as a result of the sale proceed, which forms part of your income tax and is NOT considered a separate tax – though it’s referred to as CGT.

 

In most of the cases if an asset is held for 12 months or more, then any gain is first discounted by 50% for individual taxpayers and most Trusts or by 33.3%for superannuation funds.

 

Capital loss from one asset can be offset against capital gains from other assets,  and net capital losses in a tax year may be carried forward indefinitely.

 

However, if there is a capital loss, then it will be either used to offset other capital gains in the financial year or carried to later financial years forever until it is offset up.

 

According to the ATO, most personal assets are exempt from CGT, including your home (main resident property), car, and most personal use assets such as furniture. CGT also doesn’t apply to depreciate assets used solely for taxable purposes, such as business equipment or fittings in a rental property.  

 

Foreign residents only pay capital gain tax if a gain is made on an asset that is ‘taxable Australian property’.

 

If you’re an Australian resident for tax purposes, CGT applies to your assets no matter which country it is located.

 

When you sell off an asset it’s called a CGT event, which is the moment when you make a capital gain or capital loss. Therefore the timing of a CGT event is important because it tells you in which income year to report your capital gain or capital loss, and may affect how you calculate your tax liability.

 

In the case of real estate, for example, the CGT event generally occurs when you enter into the contract (contract signed and exchange) – that is, the date on the contract, not when you settle.

 

How much is Capital Gains Tax?

CGT can be a little tricky to calculate, that’s why it’s so important to have a good accountant on your side – BOA & Co. is CGT specialist to safeguard your investment return.

 

Remember CGT is only payable in the financial year in which you sell or dispose of your rental property.

 

For most CGT events, your capital gain is the difference between your capital proceeds and the cost base of your CGT asset – that is, where you receive more for an asset than it cost you.

 

According to the ATO, the cost base of a CGT asset is largely what you paid for it, together with some other costs associated with acquiring, holding and disposing of it.

 

If the rental property or asset was acquired before 1985, then no CGT is payable, however,  major improvements to a property since that time may be subject to CGT.

 

There are two main measures to calculate your CGT

The two different calculations are:

  • CGT discount method

 

For assets held for 12 months or more before the relevant CGT event. Allows you to reduce your capital gain by:

  • 50 per cent for individuals (including partners in partnerships) and trusts
  • 33.33 per cent for a complying Self-managed Super Fund.

 

This is generally not available to companies.

  • Indexation method

 

For assets acquired before 11.45 am (by legal time in the ACT) on 21 September 1999 (and held for 12 months or more before the relevant CGT event).

  • Allows you to increase the cost base by applying an indexation factor based on the consumer price index (CPI) up to September 1999.

 

An example of using the CGT discount method is:

Justin purchased a rental property on 1 June 2016 for $300,000 and sold it for $350,000 on 15 July 2018.

 

As she owned the asset for more than 12 months she is entitled to the 50 per cent CGT discount.

 

She would need to also subtract the cost base from the capital proceeds, deduct any capital losses, then reduce by the relevant discount percentage.

 

There is a Capital Gains Tax calculators available on our website so you can work out how much CGT you might have to pay if you sell a rental property.

 

It’s important, of course, to speak to our taxation accountant when it comes time to decide on selling off or before lodging your income tax return to ensure you did it right. 

Do you need professional assistance for your CGT concerns? Call BOA & Co. accountants in Chatswood on 02 9904 7886 and our specialists will be pleased to assist you.

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home office tax claims

What’s New for 2020FY Home Office Tax Claims due to COVID-19

With an increased number of employees working from home due to the Covid-19 pandemic, home office expense claims have become more common deduction items for the 2020 tax year. Anyone who has worked from home, they may be able to claim a tax deduction for expenses they necessarily incur related to performing their work duties.

 

Traditionally expenses that can be claimed as a tax deduction by employees required to work from home includes two categories:

  1. Home office running expenses, and 
  2. Occupancy expenses.

 

Home office running expenses

In most cases, claiming home office tax deductions for these items will require some substantive evidence which should be understood to demonstrate how the deduction has been calculated. 

The ATO allows the following methods for calculating running expenses:

 

Fixed-rate

A fixed-rate of 52 cents per hour can be claimed for each hour worked from home and represents running expenses. This method is simple and more commonly used as it does not require full substantiation of actual expenses. Employees will need to keep a record of actual hours worked at home or a diary showing the usual pattern of working from home over a four week period (applied across the remainder of the year).

 

For instance, if an employee spent 10 hours per week for the whole year (48 weeks estimated after excluding public holidays and annual leave), the claim under this method will be 10 hours per week x $0.52 per hour x 48 weeks = $249.60.

 

This method covers heating, cooling, lighting, cleaning and the decline in value of the furniture.

 

If using this method, the following can be claimed in addition as per usage:

  • Phone and internet expenses
  • computer consumables and stationery, and
  • a decline in value on the computer or other equipment

Employees claiming are required to separately work out their eligible claim for these items (as explained below).

 

Actual running expenses

To calculate the claim for running costs, as an alternative to the fixed rate method employees can use the actual running expenses method. This method is more complex requiring more detailed records but may result in a larger claim.

 

To use this method, they will need to work out how much of their household running expenses ‘reasonably’ relate to performing work in the dedicated office. As an example, a reasonable method of apportionment could include working out what floor area relates to the dedicated home office as a percentage of the total floor area of the home. This percentage is applied to actual running costs incurred during the period including electricity etc. Employees will need receipts of expenses and records to prove the claim.

 

Some common examples of working from home expenses an employee can claim a tax deduction for include:

  • lighting, heating and cooling;
  • costs of cleaning the home working area;
  • the decline in value (or, depreciation) of equipment, furniture and fittings in the area used for work. Small capital items costing $300 or less may be claimed in full by individuals i.e. does not need to be depreciated;
  • the cost of repairs to this equipment, furniture and furnishings; and
  • other running expenses, including computer consumables (such as a printer, paper, ink etc.) and stationery.

 

Phone and internet expenses

If employees use the phone or internet for work, they can claim a deduction for the work-related percentage of these expenses if they paid for these costs and have records to support their claims. As above, they will need to formulate a reasonable method of apportioning their work percentage of claims, ordinarily done in the form of a logbook demonstrating a usual pattern of work use.

 

As an alternative, a tax deduction of up to $50 with limited documents can be claimed based on a set rate for work-related use of:

  • 25 cents for calls made from a landline
  • 75 cents for calls made from a mobile
  • 10 cents for text messages sent from a mobile.

 

The shortcut method 

Since the beginning of 2020 Covid-19 made people working from home more intensively, the ATO has amplified the claim using the working from home shortcut method,

 

The shortcut method to claim tax deductions at a flat rate of 80c per hour.

 

This method is only available for hours worked from home from 1 March 2020 and unless extended, will apply to 30 June 2020. Claims before 1 March 2020 will need to be calculated using the above-mentioned methods.

 

This method covers all running costs (including depreciation, phone and internet costs), and there is no requirement to operate in a dedicated work area to claim a tax deduction under this method during the eligible time period.

 

 All that is required is a record of the hours worked from home. Further, multiple people in the same household working from home can each make a claim under this method.

 

 If a person worked from home prior to 1 March 2020, then they will need to use one of the other methods to calculate the claim for this period.

 

Home office occupancy expenses

Generally, an employee cannot claim a deduction for occupancy expenses, such as rent, mortgage interest, property insurance, land taxes and rates, unless their home office is a regular place of business. In the event that a home is a place of work, these expenses could be claimed, however, beware that claiming such expenses may have adverse tax consequences such as impacting the main residence CGT exemption.

 

Occupancy expenses can include:

  • Rent
  • Mortgage interest
  • Rates
  • House insurance

 

‘In order to claim occupancy expenses, you must be able to pass what the ATO refers to as the ‘interest deductibility test’

 

Frankly speaking, if you intend to claim a deduction on the interest you pay on your mortgage or rent paid to your landlord, the area you declare as your home office/place of business must have the ‘character’ of a place of business. It should meet the criteria, outlined by the ATO:

  • clearly identifiable as a place of business, for example, you have a sign identifying your business at the front of your house
  • not readily suitable or adaptable for private or domestic purposes
  • used exclusively or almost exclusively for carrying on your business
  • used regularly for visits by your clients.

 

How can BOA & Co. help?

If you need any assistance filing your tax return, contact BOA & Co. accountants in Chatswood on 02 9904 7886 so we can help address your personal circumstances.

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tax-deductible super contributions

How to Make Tax-deductible Super Contributions

What are tax-deductible super contributions?

Tax-deductible super contributions are made from your after-tax income. This income may be from a variety of sources such as your take-home pay, savings, an inheritance or from the sale of assets.

Whatever the source, you can make a payment to your super fund from your bank account either as a one-off payment or a periodic direct debit.

 

Who can make tax-deductible super contributions?

There was a time when the only people who could claim a tax deduction for super contributions were self-employed (defined in super legislation as earning less than 10% of their income from salary or wages).

But thanks to changes in super legislation on 1 July 2017, more Australians are now able to make voluntarily tax-deductible, concessional super contributions.

If you are self-employed you can still make voluntarily tax-deductible, concessional super contributions, but now you’re also eligible if you:

  • Earn salary or wages as an employee
  • Earn investment income
  • Receive a government pension or allowance
  • Receive a partnership or trust distribution
  • Earn income from foreign sources
  • Earn superannuation income.

To be eligible to claim a tax deduction for your super contributions you must also:

  • Be aged under 75
  • Meet the work test if you’re aged between 65 and 74
  • Not use the contribution to help fund an existing super income stream or pension
  • Not be splitting the contribution with your spouse (married or de facto)
  • Not make the contribution to an untaxed super fund or a Commonwealth public sector defined benefit fund.

 

What do I need to do to claim a tax deduction on a super contribution?

If you’d like to benefit from a tax deduction on your personal after-tax super contributions, you’ll need to:

Make an after-tax contribution to your super

The amount you choose to contribute is up to you, but remember you cannot contribute more than $25,000 per year under the concessional contributions cap – or penalties will apply. If you’re an AMP super customer, you can set up notifications in My AMP to let you know when you’re nearing your limit.

Lodge a form with your super fund

You’ll need to lodge a notice of intent form with your super fund, which your super fund will acknowledge in writing.

Also note, you shouldn’t make any withdrawals or start drawing a pension from your super before your notice of intent form has been lodged with your super fund.

Are there other things that I should keep in mind?

 

How much can I claim?

If you’re claiming a tax deduction for an after-tax super contribution, the contribution will count towards your concessional contributions cap ($25,000 per year). If you exceed this, penalties will apply. 

From 1 July 2019, your concessional contribution cap may be higher than $25,000 if you’re eligible to use unused concessional contribution cap amounts that you have carried forward from previous years.

Unused concessional cap carry forward

 

Description 2017–18 2018–19 2019–20 2020–21 2021–22
General contributions cap $25,000 $25,000 $25,000 $25,000 $25,000
Total unused available cap accrued Not applicable $0 $22,000 $44,000 $69,000
Maximum cap available $25,000 $25,000 $47,000 $25,000 $94,000
Superannuation balance 30 June prior year Not applicable $480,000 $490,000 $505,000 $490,000
Concessional contributions nil $3,000 $3,000 nil nil
Unused concessional cap amount accrued in the relevant financial year $0 $22,000 $22,000 $25,000 $25,000

It’s also important to note that personal tax-deductible contributions are not the only contributions that count toward this cap. Other contributions include:

  1. Compulsory contributions paid by your employer under the Superannuation Guarantee
  2. Contributions from any other jobs you may have held in the same financial year
  3. Salary sacrifice contributions
  4. Notional taxed contributions if you’re a member of a defined benefit fund.

Do you think you are qualify for tax-deductible super contribution? Call BOA & Co. accountants in Chatswood on 02 9904 7886 and our specialists will be pleased to assist you.

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