10 Ways to Prepare For the Taxman

10 Ways to Prepare For the Taxman

When you are well on your way to earning a comfortable income as a freelancer, its best to remember that you don’t get to keep it all. The taxman will need his share. Here are 10 easy ways to keep your numbers in order:

1. Find out what the tax laws are with respect to registration as a taxpayer

Ignorance of the law is no excuse to not comply with it. If you are serious about making a success of your freelancing business then you must also be serious about your responsibilities to the state. If you can’t afford an accountant then call your local SARS office and ask them what the rules are about registering to pay taxes. Don’t wait for them to come knocking at your door because you’ve not registered yourself properly.

2. Know when you have to submit tax returns

SARS expects you to complete and submit various returns at different times of the year and they expect you to be prompt! Make sure you set aside the time to deal with these things earlier rather than later. You don’t want to be trying to fill in a bunch of details at the last minute only to find that you need another day or two to get an extra bit of information. SARS is much less sympathetic about extending deadlines than an editor!

3. Set money aside to pay your taxes

Don’t, don’t, don’t spend all the money you earn. Even if you are the least disciplined of savers, you must make yourself stash a little money away in a savings account to pay your taxes when they are due. SARS doesn’t exactly break knees to get its debts in, but they are still not the best place to be indebted to.

4. Don’t forget to pay taxes on due date

You’ve filled in all your tax returns and worked out what you owe and you’ve got the money saved up to pay your dues. Don’t mess it all up by forgetting to pay on time. SARS will usually charge you interest or penalties on late payments and that really is a waste of money. They’re not very open to excuses about postal/bank transfer delays and such like either, so best to be punctual.

5. Get yourself a simple bookkeeping system

Bookkeeping systems sound scary but they can be as simple or as complicated as you are able to manage. The most basic is a cardboard carton into which you throw all your bits of paper, your bank statements and deposit slips etc. Keep a separate box for each fiscal year and you’re doing fine! If you want to get a tad more sophisticated, get yourself a concertina file with 12 sections in it and file each month’s stuff separately. Depending on how brave you feel, you can even progress to a large box file for each year and file everything either in date sequence or by category (all telephone accounts together etc).

6. Record your income carefully

Remember to keep track of what income you earn. This is important so you can make sure you get paid by all the publications that buy your work. It is also important so that you know exactly how much of what you receive is actual taxable income. You don’t want to be paying tax on that birthday cheque Aunt Maud sent!

7. Save all your business expense documentation

Don’t forget to keep every bit of paper you get when you buy things for your business, whether it is the cash slip or receipt or the invoice from the shop. If they don’t offer you the slip, then ask for it. If you open an account, keep all the invoices and statements that are sent to you – don’t staple all the documents to your cheque and send them away with the payment.

8. Find out what expenses you can legally claim

The basic philosophy of income tax is that you must pay tax on all the money that you earn. You are allowed to deduct from that income, any expenses that you incur in order to generate the income. Every time you spend some money, ask yourself if it is purely personal or if it is for something to help you earn income.

9. Remember the ‘hidden’ costs you can claim

Lots of expenses are obviously deductible for your freelancing business – the costs of your computer upkeep, software and consumables and so on. Less obvious are items like your office expenses if you work from home. You may be able to claim for a portion of your home loan interest, part of your heating and water bills or a percentage of your property taxes. Perhaps you go shopping for the family groceries and buy some paper for your printer at the same time? Or pop into the library to do a bit of research? Remember to claim a portion of your traveling costs as a business expense too.

10. Hire an accountant if you really can’t handle figures

If figures are really not your thing and if you can afford an accountant then go ahead and hire one. A good accountant will also take the time to show you how to do a lot of the work yourself so that you can save on her bill next time around. Don’t be lulled into thinking you can turn everything over to an accountant and relax and not worry about your finances ever again. Any serious business person should know exactly what state the financial side of the business is in. They should understand the financial statements and tax returns an accountant has prepared. If you don’t understand, then make sure that you get your accountant to explain until you do.

You can also find this article at the Media Online.