As a freelancer, you’re in charge of your own destiny. You can pick and choose assignments, avoid mind-numbing daily traffic jams and do your work in your own time and at your own pace.
You’re also responsible for paying your own taxes – and this can be an intimidating prospect. It also requires some know-how, or you’ll end up paying the South African Revenue Service (SARS) more than you really need to.
Here we provide some tips for freelancers, to help ensure you can meet your obligations easily and efficiently, and remember to claim for relevant deductions. Please note that this doesn’t constitute expert tax advice – for that, you’ll need to consult a qualified accountant or bookkeeper.
Use the third provisional tax date
Because you don’t have a fixed monthly salary, you have to register as a provisional tax payer. This means you have to estimate your annual tax and pay it to SARS twice a year.
The first payment is due by the 31 August, and the second by the 28 February. But, there’s a catch; your estimated tax liability must be within 90% of the actual amount you owe, based on the assessment for that tax year.
Fortunately, a third optional payment can be made by 30 September in order to keep your total tax payment within the permitted range. Be sure to use this window of opportunity, or you’ll have to pay a penalty.
Save for bi-annual tax payments
To avoid the shock of having to pay two large amounts to the taxman each year, we recommend you save a portion of your income each month. You can put it in the money market, or an interest-bearing savings account, and access it when you need to settle your tax.
Keep track of your business expenses
Be sure to keep a record of your business expenses. Create a self calculating Excel document containing all the cost categories – telephone, cell phone, office supplies, website overheads, entertainment, and so on.
Add a column for your monthly turnover, and offset your expenses against it. You’ll have a running total of your taxable income available in the blink of the eye. As business expenses are tax deductible, you’ll need all the facts and figures to enter on your tax return (ITR12).
Benefit from home office tax deductibles
As mentioned above, you can deduct certain home office expenses from your annual tax payment. Deductibles include all office supplies, communications tools, furniture, wages, and the portion of your home you use solely as your home office.
To calculate your home office deductible, you’ll need to know the size of your home, and your office in square metres. You’ll also need to calculate the average amount your pay for rates, electricity and water each month.
Then it’s a matter of adding up the monthly costs, and multiplying them by the size of your home office:
Rates (R2 750) + Electricity (R1 000) + Water (R950) = R4 700
House: 88 square metres
Home office: 3 metres by 5 metres = 15 square metres
Tax deductible: R4 700 x 16/88 = R801
Claim your medical tax credits
If you contribute to a medical aid scheme, you’re eligible for medical tax credits. You can deduct a portion of your monthly contribution, and a percentage of the day to day medical expenses you have paid from your own pocket.
The deductions must be made annually from one of the two provisional tax payments.
You’ll have the opportunity to fill in the deductibles on the IRP6 form, submitted in either August or February. Forget to claim the medical tax credits, and you’ll lose out for that year.
Back it all up with supporting documents
SARS can request documentation to support the amount of tax you pay. Make sure you keep all the invoices and calculations in a safe place. If you don’t have evidence of your expenditure, you may be in line for a tax audit.
Join us at The Workspace
At The Workspace, we don’t offer help with your taxes – for that, please see a qualified accountant or bookkeeper.
However, we do offer individual professionals and small businesses comfortable, affordable office and coworking space, with business infrastructure that’s already set up and a range of on-site business services.