Money Strategy #6: Pay Your TaxNovember 23, 2008
This article is part of a series of eleven short articles on managing money. It is aimed at freelancers and independent contractors. Before you read this article, make sure you have read the disclaimers etc. in the introductory article about my money management rules.
Strategy #6: Set aside your tax obligations
If you are a business in Australia, you will have tax obligations. There’s nothing more certain. And there’s nothing worse than getting to the end of the tax reporting period only to find you have nothing set aside to pay your tax bill. Whether you like it or not, the tax office is one of your major creditors, and not paying them carries penalties ranging from hefty (and cumulating) fines to gaol.
Some of the taxes you may have to remit to the tax office include:
- PAYG (Pay As you Go) for your company’s employees, including you.
- GST (Goods and Services Tax) on a quarterly or annual basis. You pay the difference between GST in and GST out if it’s in the tax office’s favour; they pay you if it’s in your favour.
- Annual tax assessment
- Superannuation Guarantee levy (remitted to employee Superannuation funds)
If you are doing well, you may find you have a quarterly tax bill in the thousands of dollars. Keep a buffer to make sure you meet this obligation. If you’re not sure whether you can be disciplined enough to keep the tax office’s money in the same account as your normal business transaction account, talk to your bank—most have a separate business account you can use just for your tax payments.
- The Rules
- Strategy #1: Get professional advice
- Strategy #2: Keep your money separate
- Strategy #3: Invoice regularly
- Strategy #4: Pay your bills on time
- Strategy #5: Pay yourself
- Strategy #6: Set aside your tax obligations (this article)
- Strategy #7: Use accounting software of some sort
- Strategy #8: Regularly keep track of your position
- Strategy #9: Decide on a billing method
- Strategy #10: Manage any surplus funds