Self-employed individuals are responsible for paying their own taxes. This means that, when you are self-employed, you are entitled to a self-employment tax.
You need to set aside money throughout the year to pay your taxes. Also, you will need to file a tax return each year.
You are responsible for making sure you pay the right amount of tax, according to self-employed tax return Australia. You can also check out Maximise Your Returns: Tax Planning Tips for Small Businesses.
Who is Self-Employed?
According to the IRS, you are generally considered self-employed if:
- You carry on a trade or business as a sole proprietor or an independent contractor.
- You’re a part-time business owner or gig worker.
- You are a member of a partnership that carries on a trade or business, you are also considered self-employed.
Now, the question is how much tax do you pay if you are self-employed?
Here are some of the important things you need to know if you are a self-employed tax payer
- You have to file an income tax return if your net earnings from self-employment were $400 or more. If your net earnings from the self-employment tax calculator were less than $400, you still have to file an income tax return.
- According to self-employed tax calculator Australia, you will need to file a return and pay taxes quarterly if your tax liability is expected to be $1,000 or more for the year. If you have any employees, you will also need to withhold and compensate employment taxes for them after calculating tax self-employed.
- Failure to pay your taxes can result in penalties, interest, and even criminal charges. If you do not pay your tax bill on time, you will have to pay interest and may be charged a penalty, as part of the self-employed CPP tax credit.
- Unlike employees, who have taxes deducted from their paycheck, self-employed individuals must pay their taxes in full when they file their return.
Being self-employed has a lot of perks. You set your own hours and choose your own projects.
However, there is a downside to being self-employed if you won’t be able to compensate your taxes on time and this can be a significant expense, especially if you are not prepared for it.
To precisely calculate how much tax you owe, keep track of your income and expenses.
Use accounting software or engage an accountant to complete your Self-Assessment.
Book a session with Oyster Hub and we’ll help you file your taxes.