Is it worth getting a second job?

With tough economic times many people are turning to a second job to keep their family’s head above water.  Others are saving for a big holiday or deposit for a home.  So what are the tax implications of working another job and is it worthwhile?

At first you may think no, as when you get the pay packet from your second job it may seem like you’re paying a higher rate of tax.  This may seem grossly unfair but it’s actually just an accounting thing.  The fact is that you can only claim your tax-free threshold from one employer.  It makes sense to make the claim from the employer who pays you the most — your primary source of income — but this means that you will pay tax on every dollar you earn at your second job.

You need to ensure that you let your employer know that you will not be claiming the tax-free threshold on the money you earn.  Also, it’s worthwhile checking that you are getting paid correctly.  Sure, it may seem great to get the extra income in the short-term, however when it comes to tax time you will be hit with a hefty bill.

Other considerations

Before signing up for a second job, you should check your primary employer’s policy on the matter.  Technically, you don’t need to tell them about a second job; after all, you can do whatever you want in your own time, but there can be benefits to letting them know.  Letting the boss know that you’re thinking about moonlighting might be a wake-up call that a pay rise is necessary.

Alternatively, he or she may be able to offer you extra paid hours in your primary job, saving you a lot of stress and hassle.

Of course, there’s risk involved in laying your cards on the table.  Knowing that you’re working a second job might also make them think that you won’t have energy to put into your current job, affecting the way you’re viewed at work.

Work life balance?

Working huge hours every week will affect your personal life, so you need to weigh up whether it’s worth it.  Perhaps a better solution might be to find another day job that pays better and stick with one job.

If you are looking at improving your income to achieve that little bit extra in the budget every month, speak to us today.  We can help you review your personal circumstances and potentially identify ways you can reduce your tax, giving you more money without the need for that second job.

The ins and outs of being a contractor

Are you thinking of being a contractor, tradesman in the trades and services industry?  For many there will be a point in their working life when they decide to make the switch from being an employee to a subcontractor.

Being a contractor can happen in different ways.  Some workers will simply switch from being an employee to a subbie with the same business, whilst others will start subcontracting to various different businesses.

When switching to subcontracting there are a few decisions that will need to be made.

You need to decide on your own business structure, which will in turn impact on your tax requirements and other responsibilities such as your insurance needs and superannuation.

In this blog we will take a look at the steps involved in going from being an employee to a subcontractor.

Business structure

Once you’ve decided to become a subcontractor you will need to work out which business structure will be best for you.

Many subcontractors, especially when it comes to tradesmen, operate as sole traders.  As a sole trader there is no separation between your business and personal finances when it comes to taxation.

As a sole trader you will have to apply for an Australian Business Number (ABN) which is to be quoted on your invoices.  You may also have to register for Goods and Services Tax (GST) if you expect your annual revenue to exceed $75,000.

Sole traders have a single Tax File Number (TFN) and lodge a single tax return which covers their personal and business affairs.  Essentially, you and the business are a single entity.

There are a few other options in between, however the second main option for your subcontracting work is to operate as a Pty Ltd company.  With a company you are creating another separate entity to take care of all matters relating to your business.

A company will also require an ABN and potentially GST registration but, unlike a sole trader, a company will require a separate TFN.  As a company owner, you will also have to lodge separate tax returns for your company as well as your personal returns.

Which business structure is best?

There isn’t necessarily one structure which is better than the other, however there certainly are advantages and disadvantages to each for the average tradesman or subcontractor.

Being a sole trader is cheaper in terms of setup and ongoing costs, and also takes up a lot less time in terms of administration and paperwork.

A company structure is more complex and expensive, however it does give you more protection as an individual and flexibility in terms of structuring and paying tax.

Another major concern is liability.  As a sole trader your business and personal matters are linked, so if something goes wrong in your business it could flow into your personal matters.  For example, if you were sued for any reason or couldn’t pay your business debts, all of your personal assets could potentially be up for grabs.

With a company structure your personal and business affairs are completely separated.  If your business is found liable for something financially or you run into other financial difficulties, your personal assets are protected and cannot be touched.

This is a major attraction for many tradesmen who could potentially be exposed to serious risks in their work.

Entitlements

As an employee on wages, you are entitled to sick pay, holiday pay and even superannuation contributions, but as a subcontractor you will become responsible for all of these costs yourself.  You will also be responsible for taking care of your own tax affairs.

As a subcontractor you only get paid for the work you do, so it is important to put money aside for holidays and sick days, as no one else will be paying you for this time.

Is it also important to keep on top of your superannuation responsibilities and income tax.  By neglecting your super or tax matters you could find yourself being hit with financial penalties from the Australian Taxation Office.

Insurance

The final consideration we will look at is subcontractors insurance.  As an employee most of your insurance matters are taken care of, but as a subcontractor you are responsible for your own insurance.

Most subcontractors, and especially tradesmen, will require public liability insurance.  This type of insurance covers you for any property damage or personal injury that you cause through your work.  Many tradesmen will not be allowed to enter a worksite without public liability cover.

Another form of cover that should be considered by subbies is income protection insurance.  This cover is optional for many subcontractors, however some workplaces and worksites do make income protection mandatory.

Income protection is still important for employees on wages, but for subcontractors it is even more important.  As an employee you are entitled to sick leave and even worker’s compensation in many cases, however as a subcontractor you are really on your own.

Whether it’s a month off the tools or years away from work due to injury or illness, income protection is vital for subcontractors and even more so for a tradesman who is exposed to major risks on the worksite.

More information

If you are in the process of becoming a subcontractor or even if you’re just thinking about it, why not book a FREE, No Obligation meeting with one of our trades tax experts.  We can answer your questions and help you make the important decisions.

As specialists in tradies tax, we can help take care of everything for you, leaving you free to concentrate on earning the money!

Contact us today on 9204 3733 or fill in the form opposite to see how we can help you.

Tax tips for new business owners

Want to avoid paying more than you should come tax time?  Or a frantic last minute search for missing financial records?

New business owners have a lot on their plate, and can easily lose track of an approaching tax deadline or financial data needed to submit their return.

Organization is key when preparing for tax time, as is taking advantage of the many tools and resources out there to support new entrepreneurs.

Set yourself up for success by following these four pillars of painless tax prep.

1. Commit to clean bookkeeping from day one

Year-round, effective bookkeeping is the best way new business owners can minimize tax season stress.  With the wide range of accounting software out there, there’s no reason to rely on time consuming manual methods that leave room for error.

All-in-one options like Xero, KashFlow and QuickBooks automate your most important bookkeeping processes, including:

• Tracking expenses;
• Tracking sales and income;
• Creating and sending invoices; and
• Managing inventory.

With your financial records all in one place and up-to-date, you’re better positioned to maximize your refund, while avoiding penalties associated with incorrect or incomplete tax returns.

2. Capture every business expense

Each year, 21% of small business owners claim less than half of their business expenses, largely because they don’t have a reliable system for documenting expenditure while on the go.

Without carefully logged receipts, entrepreneurs must forfeit valuable tax deductions, sacrificing cash they could be funneling back into their business.

Cash in on claimable expenses by using a mobile app to record receipt data, track mileage and generate expense reports.  As an added bonus, many of these tools sync with your all-in-one accounting software.

3. Separate business from personal

Right from day one, small business owners should clearly divide their personal and business expenses.  Differentiating between the two will make it much easier to claim deductions on your tax return – and support those claims in case of an audit.

Recommended steps to separate your business and personal finances include:

• Create a separate bank account for your business and designate a credit card solely for business purposes (this will help you track expenditure while building up your credit and borrowing power);
• Never combine business and personal expenses (for example, if you buy printer ink for your home and your business at the same time, ask for two separate receipts);
• Pay yourself a set salary from your business bank account each month (this will help you determine how your income, as well as the business, will be taxed).

4. Always consult with an accountant

Not sure exactly what you can claim as a business expense?  Wondering which accounting software to use or how to interpret local tax regulations?

Consult with an accounting professional to put your mind at ease – well before the filing deadline!  In addition to managing the nuts and bolts of tax preparation, regular meetings with an accountant will help you continuously improve bookkeeping practices and better understand the financial workings of your small business.

Those organizational strategies you commit to now will promote positive relations with your local tax authorities – and the long-term financial health of your company.