How Does Tax Work as a Sole Trader | Tax on Your Side Hustle
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- Опубліковано 3 лип 2024
- Have you started a small side hustle business or has your small sole trader business become bigger? It is important to understand the basics of how tax works as a sole trader here in Australia. In this video, I go through the basics of tax as a sole trader on your small business or side hustle.
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Do you operate as a sole trader?
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📖 Chapters
0:00 Sole Trader and Side Hustle Taxes
0:40 The Basics
2:50 How to Calculate Your Sole Trader Taxes
4:01 How to Track Your Sole Trader Taxes
4:35 How Do You Pay Yourself
5:50 Bonus Tip
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Ethan 'Rooshock' (Rucioch) is an Australian business owner in his late 20's. He is the owner and director of Rooshock Accounting, an accounting firm. He is also the creator of an NFT project, Rooshocks. In his spare time, he enjoys travelling, spending time with his family and watching countless hours of sport. On this channel you will find a range of different content, including personal finance, business advice, tax tips, crypto tax tips, NFT discussions and even Ethan analysing some popular TV show businesses from an accountant’s perspective.
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Disclaimer
Every effort has been made to ensure that the information in this video is accurate. The information in this video and on this UA-cam channel is for entertainment and general information purposes only. It should not be taken as constituting professional advice. You should not rely on it as financial, legal or tax advice. There are always risks in any financial decision and all decisions should be made on an individual basis. You should conduct your own research and seek independent professional advice where needed. Some of the links in this video or video description may be affiliate links. Ethan Rucioch, Rooshock Enterprises Pty Ltd, Rooshocks NFT Pty Ltd or any other related party may receive a commission through these.
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#soletrader #sidehustle #australiataxes
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I've watched many videos and don't usually leave a comment.
But the way you've explained all of this. It's clear black & white now in my head. Thankyou 🙏
Really glad to hear you've found it helpful!
This is the clearest and easiest to digest video I have seen so far thank you so much for your work. I have recently started my own soul trader business as a personal trainer and I have no idea how to do my accounts and every time I ask someone to help me out I struggle understanding jargons with taxes etc. I really appreciate this thank you
Thank you! That is amazing feedback to receive!
Thank you so much brother, helped a lot ! Very transparent, love it bro! Keep it coming
No worries, glad it was helpful!
Very clear and precise information with examples. Just what I was looking for.
thanks mate...
Thank you, I'm glad it was helpful!
Thank you! that's a great easy explanation for us Sole traders.🙂
No worries, I'm glad it could help!
This was the video I was looking for. Thanks
Awesome, glad you found it helpful!
Thank you thank you thank you thank you! When it comes to how taxes work and what is needed to lodge a tax return my mind starts to melt. You've really made it easier for me.
Wonderful!
Thanks Ethan, first video I’ve watched and will definitely watch more. Clear concise with worked examples was great
Glad you enjoyed it!
Thanks for breaking it down so simply.
Glad it was helpful!
Very clear and easy to understand!!! Thanks a lot
No worries at all!
Thank you mate, this video was absolute gold!
No worries, glad it was helpful!
Big help!
Thank you very much.
No worries!
Good one Ethan, direct positive info..keep up the food work
Thanks Adam!
Great video Ethan, very helpful.
Thanks! Glad you found it helpful!
Ethan, thank you for the session. Exactly what needed. I think you can charge this if you turn it into a course.
Thanks! I'm glad you found it helpful!
This was helpful!
Glad you found it helpful!
Fantastic video
Thanks!
Thanks this was very helpful. Could you do one talking about UA-cam business structures and related topics. I hardly see anything for Australian youtubers bloggers and affiliate marketers.
No worries! I just released one on investment structures and covered family trusts/companies the other day. I've also done a video previously on content creators tax.
@@EthanRooshock that's great, I've got most of your videos on to watch later so I'll be going through most of them. Thanks for that 🙌🏽
@@ParasTube No worries, if you have any questions afterwards, don't hesitate to ask.
Do you operate as a sole trader?
i would love to see a video on a sole trader , operating at a lose
@@madrush35 Thanks it is on my list!
Thank you
Welcome!
Awesome video! So helpful, thank you.
Do you think you could go over some more of the Sole Trader tax stuff? Like super contributions for a sole trader, does a super contribution count as an expense for the business and is therefore not taxed? Or do I have to contribute super with my after tax profits? A video on that would be awesome too.
Cheers!!
No worries, glad you found it helpful!
A super contribution is handled in your personal tax return. You would need to fill out a notice of intent to claim if you intend to claim it as a tax deduction. If you do that, it will reduce your taxable income.
Also - GST! Thats confusing too! :)
@@docteurd815 No worries, I'll add it to my list
Yes... just started a couple of months ago. Trying to do my tax... wanting to do it online and simply. Also have a job.
Best of luck!
@@EthanRooshock I am trying to do my tax - I have an employer where I earned an income but also commenced my own business as a photographer as a sole trader. I went through and completed everything (I thought I have done it right) and I only earned a small amount in the business but spent a lot more so am running at a loss. At the end, the return said I couldn't claim loss because my employed income is over $40,000. Is this right or have I completed something incorrectly?
Thanks for this video Ethan, super helpful.
Keen to watch a video if you end up covering an exmpale video for people who have a full-time job and wanting to start a side hustel (start up) as a sole trader. First few years would be full development phase, so there won't be any additional income as a sole trader.
With this, is it possible to get tax deduction benefits for buying equipments and online services to get the business up and running?
No worries. If you check out my video on Non Commercial Losses, that will hopefully answer some of your questions.
Thanks Ethan! Especially when starting out and having more expenses than income, can you carry over losses as a sole trader to the next financial year(s) like you would for businesses? Thanks and keep up the great content!
It depends on the situation. There are Non Commercial Loss rules that you have to meet. If you meet one of them, you can deduct the loss against other income sources. If not, the loss has to be deferred. The main one that people normally meet is $20K in turnover.
@@EthanRooshock Yep. It sucks. I started up a financial adviser business as a 'side hustle' and, due to relatively high fixed costs (licensee fees, ASIC levy etc.) have made a profit (or had more than $20K pa revenue) for the first few years and therefore not been able to include the losses against my PAYG wage income from my full-time job, but instead have to carry it forward until I (might) eventually turn a profit on my 'business'. I suppose looking for a 'silver lining' it means that if/when I eventually start making a profit (or at least have more than $20K pa client revenue) I won't be paying taxes on the business revenue for several years (until the carried forward losses have been used up).
ps. What are the rules regarding carried forward losses from one business and other business/side-gig income? eg. are non-commercial carried forward losses offset against profits from other (non-related) business ventures/side gigs, or are they only able to be claimed against future profits from the same business venture?
Great video! How do you go about borrowing for a mortgage? Does it go on the profit earned or the revenue earned?
Thanks! The banks would look at a variety of factors but normally profit is the key one.
are you able to do a video explaining Tax obligations for people on Government payments (carers allowance/payment, disability and aged pension)
Yeah I can add it to my list. They are very basic though. If they are taxable, they get added to your income.
I'll ask a Q & Answer what I think is right if you can help correct me, I've just started as a sole trader this financial year in the reselling, flipping & thrift style business, now my Q is can I claim: *stock purchased at the thrift stores
*postage cost of stock
*kMs travelled to acquire stock or go to post
*Bank fees and Ebay Fees
I appreciate your Videos they really help explain things for me as I also work a normal 9-5 full time job so the sole trader side is currently a side hustle.
Yeah but stock is treated differently to other expenses. Got a full video on that topic on the channel.
Definitely for all of the other things.
Great video! How does the GST plays the role in income tax? When you said sole traders will be taxed on the profit does that profit mean (income - expenses - GST) or it is just (income - expenses)?
Net amounts (ex GST) always for Profit & Loss
Hey Ethan, Can you explain more about getting an ABN or not? How does the withholding of 47% work as a side hustle?
I have some videos on my channel about Hobby vs. Business. That will help decide whether you need an ABN or not.
What 47% withholding do you mean?
@@EthanRooshock Thanks for the reply. Im not too sure, business.gov.au states "Without an ABN, other businesses must withhold 47% from payments they make to you for tax purposes."
Very helpful and thanks.
I have just started a "side hustle" of AirBnB and the income earned from the shortstay is already tax deducted by the booking company.
With my tax return,
1. Will I be taxed again on the profit made from the biz in addition to my regular income?
2. In the course of setting up the biz, I purchased most of the items required from Facebook Marketplace. Will I be able to claim all these as part of my expenditure on the biz? I have kept all the records of purchases.
3. Also, will I be able to claim all the man hours I put into setting up the biz? (Cleaning, House-Painting, Setting up furniture etc)
Thanks
Air BNB works different to a sole trader business. You'll need to do some research on that.
Definitely worth chatting to an accountant.
I'd like to know about taxes on trading the futures market for Australians? Thats trading for a prop firm in the states as a contractor. I heard about TOFO tax system that traders go by, but Im unsure of all of this.
Best to seek individual advice on this.
Fantastic video, i work a full time job and just started a side hustle in consultation space.
Only 1 question with registration a business name as a sole trade dies that affect tax in anyway
Thanks, glad you found it helpful!
If you pay for a business name, this would be a tax deduction for that business.
@EthanRooshock if i use subbies, do i pay tax on the payment total received by the client or on the amount left after paying the subbies
@@Campbell400 Income is the income, payments to subbies are an expense.
Hi Ethan, thanks for all the easy to understand info!
My question is: What if I'm already a sole trader (very small business trading under my own name) & I start a small 'side hustle' business (under a registered business name) under the same ABN, does all income & expenses for both activities roll together for tax purposes? (I don't have any other taxable income). Cheers
As a sole trader you can only have 1 ABN but multiple business names. They all go through the same tax return though.
@@EthanRooshock Thank you 👍🏼
@@kellymyers7470 No worries!
Awesome video! So, considering I am currently working from home as a sole trader, I have general rental bills and electricity. I’ve used the 30% rule for business expense but the bills are paid through personal account. So, would I take that percentage out of my business account into my personal account? Or how is the rent, bills, mobile ect tracked through books each month? Love your work!
Glad you found the video helpful! You would need to somehow record that 30% in your business records (spreadsheet, software, etc.). You can do whatever you want when it comes to actually paying the bills or transferring between your personal and business account.
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@@tuffathletic Thanks!
Very informative video. Can I use my existing sole trader ABN (events side hustle) to apply for Uber eats or Doordash? Or do I have to create a new ABN for food delivery purposes?
Can only have 1 ABN as a sole trader so definitely don't need to create a new one.
Whether it is a good idea to mix businesses is another question.
Thanks but if I set a business account and then transfer the earnings to my account wouldn't that affect my personal net income as I'm receiving money from an "external source"?
No, as explained in the video, a sole trader is taxed on their profits, not what is withdrawn.
Quick question. So if I'm only counting my profit from my business income after expenses. Does that mean I don't declare all of earnings before expenses? So if I made 40 thousand income, then used 15 thousand for expenses. Would my income be 25000. What if I was applying for a loan and needed the 40 thousand to be income proof?
You declare the income and the expenses which will give you the profit. The bank is only going to care about your profit, if you have $40k in income but $15k in expenses, your taxable income is $25k.
hi ethan, thank you for your video.
may i know, if i transfer the money from my business account f0r personal use. whatt should i putt in the account record?
example my income from business is 20000, business expenses is 1000, but i use the money for personel usage is 10000. how much money that i need to pay tax?
No worries!
That will depend on what type of entity you run the business through. It could be a number of things, wages, drawings, loans, dividends, etc
Hi I am international student ,I have ABN , but I have one question I was working like cleaner in the part MAIN BUSINESS OR PROFESIONAL ACTIVITY I don´t know what is the option , Can you help me please ??? Regards
I'm not sure what you mean sorry.
Ifs someone’s working ft and starts a side gig under sole trader when does GST come into play? Cheers
$75K of turnover for the business. Your employment (if normal salary and wages) doesn't count towards it. Just the income for the ABN.
in the example is it 70 k before or after expenses ?
You are always taxed on profit (income less expenses).
How can a claim for an ecommerce business I paid for please ?
Definitely speak to your tax agent.
Hi Ethan if you opened your business in 2021 and haven't lodge or report tax return and EOFY tax how can this be solved?
Lodge your returns, that will solve the issue.
Thank you much. I'm an international student (will be going back to my country in July) but managed to get side hustle job for only 40 days - to work from home. In order to get the job, I registered ABN as sole trader. The timeline of this work will take me up to September 2023, by which I will work from my home country.
Can I include my rental here in Aussie and so my rental in my home country as part of my expense?
Thanks in advance.
It depends on the other country. Definitely need to seek individual advice.
Hey mate, thanks for the video!
Can you make deductions that dip into your wage, rather than the income from your side hustle if the costs outweigh the profits while starting up, or are you better off waiting to claim those deductions the following, more-profitable year? Can you even claim deductions from a previous financial year?
There's something called Non Commercial Loss rules that you have to meet to be able to offset against your other income. Have a look on the ATO website about it.
I will do a video about it one day!
@@EthanRooshock thanks so much. I scoured the ATO for hours, clicking every link possible from the Sole Trader info available, but never found the relevant info. That's what I was looking for.
Cheers and subbed.
@@HURHRHRHRHR No worries! I don't know why they don't make it easy to find it! Thanks!
Hi Ethan, if you make a loss for one year with your side hustle, is that taken off your income from your main job?
You have to meet what they call the Non Commercial Loss rules. I have actually just finished recording a video about this topic this week. Hopefully it will be uploaded next week!
Hey mate, thanks for the video. Just a question, how did you get $31867 as tax of 120k?
Website called Pay Calculator is great for calculations.
If as a sole trader one is providing consulting services from their home, can they claim their house rent or house mortgage as their expense? because that is literally their office and they are providing all the consulting services from their home.
Definitely best to seek advice from your tax agent in this area as while it may be claimable (a portion of it), you need to understand the CGT implications.
I make $3000 per year on my side hustle walking dogs. I have a van that I use exclusively for the side hustle. Can I claim my yearly rego and car maintenance as a expense say $1500. So my taxable profit will be 1500 (3000-1500). Do I need proof/records for these business expenses?
Have a watch of my videos I've done talking about car expenses. Hopefully that should answer your questions.
Can your business expenses offset the income from your day job? e.g. day job makes 70k in year 1, side hustle makes -10k. Can you deduct 10k from your day job income?
Only if you meet the non commercial loss rules. I'll make a video on it in the future.
I operate a sports equipment side hustle operating out of my home, what's the maximum percentage of rent I can deduct on my tax return? I estimate the equipment uses 30-40% of the floor space in my home /garage. Cheers!
Probably best to seek the advice of your accountant on that one to make sure the advice is customised for your particular situation.
@@EthanRooshock the whole point is to do it myself and avoid paying an accountant lol
@@wokitlikeyoutalkit5619 Best to contact the ATO then.
So how does tax work then? I have a small business. Iv had maybe 20k in money go into my business account this year but 10k of that went out to materials. Will I have to pay tax on 20k now?
I'd highly recommend watching this video as hopefully that will also it in more detail. In short you will pay tax on your profits.
@@EthanRooshock I did watch it and still doesn’t answer my questions
@@Ful-OGold You probably will then need to speak to your accountant about it then
Hi so just to clarify my eccommerce store has done just shy of 50k sales this year but I only make approximately Net 10-30% on average from each sale. (Working on a better system to keep track lol)
So at most I net profit only 15k
However I was spending approx $2,400 on ads and a ad agency for 5 months plus site fees (Multi vendor website so $200+ a month)
So realistically i would have only net profited a few thousand for the year.
So would I only put 3K net profit on my tax return despite the gross income being so high? (I didnt do the exact maths.)
I really wish they taught this shit in school instead of useless maths ill never need.
Yep Income less Expenses is your profit. Doesn't matter how high your revenue is, you only pay tax on your profits.
What expenses would be included for sole traders to claim tax deductions.
For example, if it costs me $10 to make a product (material supply etc) then I sell it for $12, can I claim $10 expenses as a deduction and only be taxed on the $2 profit?
Yeah you can definitely claim any costs associated to producing profits. You pay tax on profits.
Thank you for the speedy response. I don't think many beginners understand this stuff very well 😢
@@GnostlyHero Yeah that is my goal, to help as many people understand the basics.
How can I reduce my tax as a sole trader?
I got a normal job which gives me 180000 and a sole trader job for 120000 .
When I work as sole trader I get taxed 45%.
So my question is should I start earning under company so I can reduce tax
That depends on what industry you're working in etc. If you're at that levels of profits, I'd highly recommend you engage a tax agent for personal advice.
Hi Ethan, if I don't charge for shipping, can I write shipping off as business expenses?
Yep definitely still a business expense.
Even if you charge for shipping, you can still claim as a business expense.
where did you get $7467 tax on $50,000 when the simple tax calculator on the tax department website says the tax on $50,000 for 22/23 is $6717?? The simple tax calculator says the tax on $70,000 is $13,217. and tax on 120,000 is $29,467
$6717 Income Tax, $1000 Medicare Levy, less $250 for the LITO
@@EthanRooshock thanks...interesting to see that the LMITO ended and LITO is $67677 or something
@@BG_36 Yeah it's a little confusing when it comes to the names of them!
So you could make a separate personal account and treat that as a business account?
Yeah you definitely could. The only risk with this is some banks don't like you running a business from a personal account. I think ING were actually forcing people to close accounts they were using as a business account a couple years ago.
@@EthanRooshock Ok, good to know 🙂
what about the tax free threshold with 1 job? by having 2 jobs, yet getting one income- what happens to that 2nd jobs extra tax
I'm not sure what you mean exactly sorry. Is this related to this video or another one?
In general, all your income is put in your tax return at the end of the year. Total tax owing is then calculated. They then take off all of the tax you've had withheld from any source and then that gives you a final payment or refund amount.
@@EthanRooshock cheers mate, sorry i wasn’t clear- you actually had made a detailed video about my question, i should have looked prior!
@@dougbrazil9157 All good!
hi ethan i am working full time while having individual sole trader abn I was working casually with another employer but profiting just around 1000 ish will all of the taxable income goes to my full time employment ?
If you're a sole trader, all profit from that gets added to your individual tax return.
@@EthanRooshock so does that mean they will just need to add up the income from ABN and TFN altogether and do it once instead of processing the income of TFN and ABN individually which gonna be 2 process happening?
@@stefanderianhartono994 1 tax return for all your earnings as an individual. A sole trader is classed as an individual.
r u in sydney ?
No based in Adelaide but have clients all around the country.
Thank u for clearing that up 4 me tax makes me nervous
No worries, glad I could help!
I have an abn but i dont think ive made up to 18k, do i need to lodge this?
Do you run a business? Then yes you need to include it. There is no $18K limit.
@@EthanRooshock sorry i didnt elaborate, as a sole trader, dance teacher. And was refering to tax withheld
@@DeeRob2010 Again, if you are running a business it needs to be included in your tax return.
So essentially if I earn $180k as an employee and I start a sole trader I’m going get taxed on my business at 47c? F#ck that!
Yeah the exact same as if you earned more than $180k as an employee. Its the same tax rate
@@EthanRooshock yeah so it’s better to setup a company even if you just want to be a painter on weekends as tax rate is 25%. I see no benefits to being a sole trader if you are going to be taxed at 45c
What if your side hustle hasnt made any money lol
Then you’d have a loss.
If you stream online and do things like unboxing or product reviews, are the purchases to do the videos tax deductible? How does this work with tax as a sole trader, assuming you are making revenue from the videos? @EthanRooshock
I have a video coming out for content creators within the next week or so.