As June 30 approaches, the best freelancers already know what their tax position is for the financial year and they have all their resources ready for it. It’s not because they knuckled down early and crunched the numbers before the rest of us, it’s because they adopt a different mindset when it comes to tax.
For most business owners tax time is a huge burden on their business with the extra stress taking its toll in more ways than one. It can be an overwhelming feeling when the time, energy and money needed for your tax isn’t available.
At the other end of the spectrum are those freelancers who have adopted the mindset that tax time can be used to benefit their business when it’s managed properly. Thinking this way motivates these freelancers to make preparation for tax time part of their daily business routine instead of leaving it to the last minute. So, what are some of the benefits of taking this approach?
Cash-flow and money management
Anyone in small business knows that cash is king, but what about how we manage that cash once it comes through the front door? If there is too much of a focus on getting the money in and not enough on how to best manage the money, we can end up dropping the ball.
When it comes to being organised for tax time, this becomes even more critical to keeping the business running smoothly. The statistics show that each year micro business owners are responsible for three-quarters of all tax debt. That’s a telling number when we know that sole-traders have the highest exit rates of all business types in Australia.
So how can we build money management strategies into our daily routine?
- Tax & GST savings: setup a process of putting money aside for your tax bill throughout the year, as often as you can. Put the money somewhere out of reach and leave it there or pay it to the tax office. Do it as often as you can and automate the process where possible.
- Super savings: as a freelancer, super may be a voluntary contribution, the only way to make sure it gets paid is to put the money aside as you go.
- Profit savings: Planning for profit is a proactive approach whereby you put money aside (whenever possible) to ensure you have something left in the kitty for you.
While this may seem like a lot of work, there are systems available in Australia that can automate these steps, so you can keep your focus.
Consistent and deliberate organisation
In the scramble of daily tasks, it can be difficult to keep your head above the water, let alone trying to keep yourself organised. This is most prominent for freelancers because of all the different hats that we wear as business owners. That is also the reason that being organised and keeping on top of your numbers is critical to making everyday business decisions – because no one else it going to do it for you.
Using modern online tools, it is now very simple and affordable to keep track of the numbers you need for tax time. The trick is to build a small block into your daily routine to keep your paperwork up to date:
- Invoices: keep a simple and structured process to administer your invoices, this includes knowing which invoices have been paid and which are still outstanding.
- Quotes: if you are quoting it is important to have a track record of which quotes have progressed to invoices and which haven’t.
- Receipts: manage your transactions by maintaining a thorough record of every business expense.
- Payments: have a simple and clear method for identifying and recording payment details, including linking them to the right invoices.
Try building a small block into your daily routine to keep track of receipts, match up payments and send new invoices so you can get the jump on tax time.
The third and final step is where it all comes together and you can end up enjoying tax time if you have taken on the mindset of proactively managing your tax commitments.
Prior to the end of the financial year it’s always a good idea to recap on the year that was, review a tax strategy with a professional and prepare for the next financial year. Proactive money management means that there is already a bank account with savings for tax, GST, super and ideally a profit. Likewise, by keeping up to date with tracking your income and expenses ensures there aren’t any nasty surprises.
Now you can roll into tax time without the stress, knowing that you are organised and on track with every advantage the end of financial year has to offer.