It’s that time of year again! No, not Easter, but tax return time!
For many creatives – who are freelancers and sole traders – tax time can be a stressful undertaking for many different reasons.
But there are things you can do help make it less, ahem, taxing.
The IRD has some great resources on its website that can help you track your income and expenses throughout the year – their cashbook template spreadsheet can be particularly helpful in calculating GST, as well as expenses and business deductions.
You can also request one-on-one time with a tax advisor from the IRD, who will take you through all the things you need to know if you are doing your end-of-year accounts yourself. This is a free service and highly recommended if you are at all unsure of your tax obligations or how it all works.
There are also lots of visual aids designed to help you work out what business expenses you can claim – right down to toilet paper and light bulbs if you work from home – which a lot of creatives do. There are also seminars and webinars that might be useful.
Because many creatives are contractors – you will most likely need to put money aside for tax with every invoice you are paid.
Unless you specify you would like withholding tax taken your of your supplied invoice – you will need to ensure that you take out enough money to cover your income tax when the year ends. A good tip is to put this money in a high interest bearing account so that it accrues interest every month – and also try to put it into an account that is hard to withdraw from so you’re not tempted to use it for other things during the year.
Speaking of bank accounts – it’s good practice to have a few separate accounts so you can keep track of expenditure easily. Have one account that money is paid into and your bills are paid from, and one where your tax and GST money sits. It’s also a good idea to create an automatic payment from your income account to your Kiwisaver provider – if you can do this regularly, you will be amazed at how quickly it adds up and helps ensure you get the Government top up.
Keep records of all your invoices and expenses, including your ACC levies. It’s also a good idea to keep a record of the hours you work, as this will help classify whether you work full time or part time – which will be helpful if you need to claim subsidies or government assistance in the future.
And if calculating your tax return is just too much of a headache – there are other options. There are a range of online products specifically designed for freelancers and contractors. Each one is different so do make sure you find the right software for your particular business.
There are also some great resources on The Physics Room’s site – including this one from the Artist Life School, Tax for Creatives – it’s got some great advice from Margot Van Der Water and you can download the resources by clicking this link.
Check out these links for more information: