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  • #966250
    neykid
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    Hi everyone,

    Well, I’ve had my ABN for around 3 years now, but until recently not done any work. A bit of background;

    I am currently at uni studying Visual Art. I did 4 years of Graphic Design studies and transferred to straight Visual Art for my honours year. Recently, someone approached me to do some design work. Then, through word of mouth, started getting a few drips and drabs of work.

    I am looking to supplement my Centrelink income with freelance design work, as well as selling drawings, handmade items, etc on a site called Etsy, which is similar to eBay.

    So I recently got my first few payments from design work which went straight into my business, trying to set up a website for myself, purchasing materials, etc. So I didn’t report this income to Centrelink as I am registered as a Sole Trader, and figured that because I used the money on my business and didn’t pay myself as such, that I didn’t need to report.

    What I’d like to know;

    1. Should I be reporting the money I make to Centrelink as a whole, or just “pay” myself an hourly rate and report this? Because I am in the start up phase, all of the money I earn is funnelled back into the business. Will I be penalised by Centrelink for this when it’s tax time? Or is my business income separate from my Centrelink income and only the wage I set for my time relevant?

    2. I heard that I can partially claim expenses such as rent, electricity, etc at tax time as business expenses. What can and can’t be claimed as a business expense when working from home?

    3. I have never recieved any letters from the ATO regarding BAS statements, tax etc from being a sole trader. Is this normal? Or will I only need to fill out a BAS and tax once my services / ABN is claimed as an expense on another businesses BAS/tax?

    4. It’s a bit late to be really worrying about this one now, but I heard that as a sole trader, I am claim my university expenses as a business expense related to training. Is that right?

    5. As a sole trader, because I am a graphic designer, I would be doing all my own promotional material, etc. Am I able to claim the hours spent on creating a website, setting up an Etsy shop, designing business stationery etc as a loss? Or do I pay myself based on the hours spent doing work for myself?

    6. Is it worthwhile setting up a separate business bank account, or is it OK to just keep really close track of income and expenses?

    7. When reporting business activity, because I work on an invoice, do I date according to when work was completed and invoiced, or when payment was recieved?

    Sorry, these might be really silly or obvious questions, but when it comes to finance I can’t make head nor tail of it! I would like to be able to manage my own finances to keep costs down until I find a suitable accountant. Plus, I’d like to be able to learn a few things for my own interest.

    Thanks!

    #1017051
    Astrid
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    • Total posts: 459
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    Hi

    I can’t answer the centrelink questions, but those:

    5. As a sole trader, because I am a graphic designer, I would be doing all my own promotional material, etc. Am I able to claim the hours spent on creating a website, setting up an Etsy shop, designing business stationery etc as a loss? Or do I pay myself based on the hours spent doing work for myself?

    no, you can’t, you can only claim the expenses on webhosting, material for stationery, membership fees (if there are any with etsy)

    6. Is it worthwhile setting up a separate business bank account, or is it OK to just keep really close track of income and expenses?

    it’s worthwile setting up an extra account if you get more income.

    7. When reporting business activity, because I work on an invoice, do I date according to when work was completed and invoiced, or when payment was recieved?

    Yes. I record invoice date and payment received for accounts and keep track of dates of when I got the order, how many hours I spent on it and on date of completion for my own records. That also gives me a good overview which client brought in how much work incomparison to the previous year, for example.

    But I would still suggest to talk to an accountant, doesn’t cost an arm and a leg, I mainly use mine only for tax returns by now (and the occasional chat when things are unclear).

    #1017052
    Astrid
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    • Total posts: 459
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    Oh, forgot: question 3:

    Yes, you can claim a percentage of each – you need to keep record of your phone bills and how many calls were for business purposes, after a while you can settle with a certain amount. Same with internet usage.
    I claim 20% of my rent and electricity ( I work from home), my studio takes up 20% of my home.

    If you have a car, keep track of your business trips, otherwise keep tickets.
    But this is something an accountant can explain much better.

    #1017053
    Anonymous
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    neykid, post: 19350 wrote:
    What I’d like to know;

    1. Should I be reporting the money I make to Centrelink as a whole, or just “pay” myself an hourly rate and report this? Because I am in the start up phase, all of the money I earn is funnelled back into the business. Will I be penalised by Centrelink for this when it’s tax time? Or is my business income separate from my Centrelink income and only the wage I set for my time relevant?

    Unfortunately, they only care about what you EARNED … whether it is an hourly wage or income from a paying venture… you need to declare every cent you earned. Don’t think you can get away with it and do it “under the table”.. you will get caught. It isn’t worth it.

    (ESPECIALLY if the money has gone through your bank account leaving a paper trail. Even “cash in hand” work will get you caught as they constantly wonder how you can afford X, X and X when only have X.)

    I was in your position many many years ago and when I finally let go of having Centrelink as my “safety net” … It felt great.

    Quote:
    2. I heard that I can partially claim expenses such as rent, electricity, etc at tax time as business expenses. What can and can’t be claimed as a business expense when working from home?

    It depends on how many sq metres your “home office / workspace” takes up depends on how much of your rent, elec, internet, etc you can claim. Best to find an accountant (or at least dig deeper into the ATO website itself).

    Quote:
    3. I have never recieved any letters from the ATO regarding BAS statements, tax etc from being a sole trader. Is this normal? Or will I only need to fill out a BAS and tax once my services / ABN is claimed as an expense on another businesses BAS/tax?

    Of course you have not! You may have an ABN however they will only start asking for you to do your PAYG tax as soon as you start using the ABN. In your first year you only have to do an end of year tax return, then based on this tax return they calculate your BAS payments. You won’t have to worry about GST unless you’re registered … just tax payments. Don’t worry if you fall behind or short or have problems meeting your obligations – they are open to working with you.

    Just remember, don’t try to AVOID paying tax .. it’s not worthwhile doing so in the long run … just learn to be smart and minimise it.

    Quote:
    4. It’s a bit late to be really worrying about this one now, but I heard that as a sole trader, I am claim my university expenses as a business expense related to training. Is that right?

    Speak to an accountant however I have a feeling that you won’t be able to claim a lot of it because you started doing business AFTER you started the course. It might have to do with timing. There is a reason why I tried to hold off on a lot of animal related courses til I had an animal related business :)

    Quote:
    5. As a sole trader, because I am a graphic designer, I would be doing all my own promotional material, etc. Am I able to claim the hours spent on creating a website, setting up an Etsy shop, designing business stationery etc as a loss? Or do I pay myself based on the hours spent doing work for myself?

    No. I wish I could claim all the hours I spend on my business’s website and on the business itself!! HAHAHAHAHA!!! Nope, I earn money, I claim as many deductible as I can against that income then I worry about tax (simplified version).

    Quote:
    6. Is it worthwhile setting up a separate business bank account, or is it OK to just keep really close track of income and expenses?

    Yes, even if it is a sub account to your main account.

    You will also need to start using MYOB or Quicken or some sort of accountancy program so it makes it easier for you to “see” where your incomings / outgoings are etc.

    Quote:
    7. When reporting business activity, because I work on an invoice, do I date according to when work was completed and invoiced, or when payment was received?

    I work as a contractor with another company. I put the date of when I sent the invoice on the invoice. I do the work, I date my invoice of when I am sending the invoice. I wait to get paid.

    btw… i before c except in receive ;) i corrected the spelling mistake in the quote. =P =P

    Quote:
    Sorry, these might be really silly or obvious questions, but when it comes to finance I can’t make head nor tail of it! I would like to be able to manage my own finances to keep costs down until I find a suitable accountant. Plus, I’d like to be able to learn a few things for my own interest.

    Thanks!

    That’s admirable however realise sometimes that you can’t do everything.

    #1017054
    neykid
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    Thank you both for your prompt replies. I think the easiest thing is going to be to just get an accountant :S

    Thanks again :D

    #1017055
    Integrated Alliance
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    neykid, post: 19371 wrote:
    Thank you both for your prompt replies. I think the easiest thing is going to be to just get an accountant :S

    Thanks again :D

    Hi neykid,

    Great to hear that you are starting to get some jobs with your graphic design business!

    You’ve asked some really good questions in your post – vstacy and Astrid have answered a number of these already, the only question that is a bit “iffy” is in relation to the university expenses. From our experience, it does indeed depend on timing – when you obtained ABN, and when you started course, etc.

    We have a number of clients who are graphic designers and I’d be happy to give you an idea of what can and cannot be claimed for your business.

    Feel free to drop us an e-mail.

    And all the very best with your business!

    Andrew Lowe
    Integrated Alliance Chartered Accountants
    http://ialliance.com.au
    Small and Medium Business Specilialists

    #1017056
    neykid
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    • Total posts: 3
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    Thanks Andrew!

    I will definately have a look at your services later on in the week.

    I organised a second bank account and am currently filling out a balance sheet, so I am slowly on the way to getting my finances organised :D I am also making sure I keep all business related receipts.

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