Starting a side hustle is an exhilarating endeavour, and with the rise of it across the country there’s a critical lack of clarity around financial expectations, and a real need for education across the board. Understanding the fundamental financials for your side-hustle, before you take the plunge, can mean the difference between making or breaking your success.
In my experience working with start-ups and gig workers, I’ve seen many struggle (and fail) without the adequate knowledge of their tax obligations. Bad or completely absent accounting and financial processes can affect your cash flow, your business and even have a serious impact on your personal life.
Grab a cup of coffee, and sit back; these are some of the tips and tricks I deem essential to navigating the tax landscape – specifically tailored for gig workers and tax-savvy side hustlers.
- It all starts with an Australian Business Number (ABN). As a sole-trader, this unique identifier is your gateway to operating as a business entity and is intended to simplify tax and financial matters.
- Establish a Separate Business Bank Account. Doing so simplifies financial management and record-keeping, making it easier to accurately track business-related transactions. Separating personal and business finances ensures clarity, and simplifies tax reporting, and saves time during reconciliation. Additionally it can help you down the track; it’ll make it easier if you decide to apply for a loan or obtain finance for expansion, and it adds a level of professionalism to your operations. Fundamentally though, mixing personal and business finances can turn into a labyrinth of confusion, so do it for the sake of your sanity.
- Engaging Technology: Tracking Income, Expenses, and Deductions. Keeping track of income and expenses from the get-go is vital, and your separate account simplifies this. But you need more, so whether you opt for spreadsheets or leverage user-friendly accounting software or apps like TaxLeopard, find a method that suits your preferences and needs. For more extensive accounting solutions, there are more robust platforms and programs available. Tech is your friend in this space, you can’t and shouldn’t operate without it. A little research into what fits you best, means you won’t have to pay exorbitant fees for something with capabilities that are far beyond your needs.
- Understanding Business Usage. If your side hustle involves using personal resources, such as a mobile phone, internet services, or a vehicle, it’s essential to keep track of the business and private use proportions. This information allows you to determine the appropriate deductions.
- Goods and Services Tax (GST). It should be noted that unlike other businesses or sole traders, the $75k GST threshold doesn’t apply for rideshare drivers. You must pay GST from the first dollar earned. The consumption tax is levied on the supply of goods and services and is calculated as a percentage (currently 10%) of the price of the goods or services you provide. You will need to submit quarterly business activity statements, accurately report your income and expenses, and fulfil your GST obligations.
- Consider your Deductions. The expenses incurred in the course of running your business reduce your taxable income, and affect the amount of tax you owe. Depending on the nature of your gig or hustle, you can potentially claim deductions for home office costs, vehicle expenses, equipment, supplies, insurance, training, and more. Understanding your business usage (above) is critical, and seeking professional advice from the outset is recommended for clarity and ongoing confidence. Separate bank accounts also support this reconciliation process.
- Budgeting and Financial Management. Effective budgeting is paramount to your financial stability. There are various tools and software available, so choose one that aligns with your unique circumstances. TaxLeopard offers a user-friendly platform that provides real-time updates on GST obligations for gig workers and helps forecast whether you’ll owe or receive a refund. By staying on top of your finances, you can make informed decisions and plan ahead more effectively.
- Reinvestment or Income? Determining how much to reinvest in your side hustle and how much to pay yourself depends on your specific circumstances. While there is no one-size-fits-all approach, striking a balance is crucial. Allocate a percentage of your income for personal use, but also reserve funds for reinvesting in your business. Consider business growth potential, stock replenishment, marketing efforts, or skill enhancement when making reinvestment decisions.
- Get the Right Professional in your Corner. You should find a tax accountant that has expertise and focuses on sole traders and understands your business. Traditional accountants can charge big fees due to their big overheads. As a sole trader, considering the amount of time it takes to reconcile and lodge your tax return, the hefty fee doesn’t justify the return on investment. TaxLeopard’s all-in-one platform is designed specifically for sole traders, gig workers and rideshare drivers, and the tech is backed by real accountants that are experts in sole trader tax obligations and financial management.
Setting Yourself Up for Success
The most common mistake among gig workers is failing to set aside funds for tax obligations – what you earn isn’t all yours, and it’s easy to get caught up in a cycle of chasing your tail. It’s important to proactively save for your income tax return and any GST liabilities you may have. Technology and platforms like TaxLeopard can help by providing a live overview of your GST obligations throughout the year, reducing the chances of a surprise tax bill. By setting aside a portion of your earnings, you can ensure you are prepared for tax payments and maintain financial stability.
Setting up your fundamental rhythm from the kick-off may sound daunting, but trying to scramble later is harder.
By staying organised, understanding your obligations, keeping your finger on the pulse in real time, and gaining professional advice when you need it, you can confidently manage your taxes and achieve financial success. Ongoing education, keeping things separate, and proactive planning will support your long-term financial stability and growth in the gig economy. With the right strategies and insights you can not only survive but thrive.