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Simple way to pay income tax for sole traders

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Hi Guys, I'm so confused on the ATO website - need help.

 

About my business:

  • Its like a chain of never ending hyperlinks taking me in cicrcles (You know what I mean). 
  • I'm a new sole trader business - new startup
  • I'm a total tax noob and I will always be, because its confusing. #taxnoob
  • Since ATO is discontinuing the Business Support Program on 1 July so I was told I cant use it and their hotlines make it hard to reach anyone regarding these nitty gritty questions I need help. So its a bit useless in terms of business support. I have no time to stand in front of queues. 

Topic I need to know about: 

  • I need to know in simple terms - no complicated steps - just point form answers on paying tax as sole trader.  
  • I'm getting mixed answers and my tax agent is directing me to ATO and of course the ATO website has mixed answers. 
  • Hopefully this will also be useful for other sole traders. 

 

Questions I need help answering: 

  1. Calculator: Which ATO calculator for calculating tax I need to pay as sole trader. I need to know which ATO calculator to use. 
  2. Average Tax Formula: Approximate tax percentage to calculate for sole trader earning less than 75K (as I will not be charging GST) eg: 10% of earnings? 20% of earnigns? 30% of earnigns? And Im ok with ATO refunding any excess. I rather pay regularly and get rufunded than have to pay huge sum at the end of 12 months. Need a formula - eg: Income - 0.20 (20%) = Tax to pay
  3. Frequency of Tax Payment: How often does ATO recommend a sole trader to review that periods income and calculate tax and pay it? each month? every 3 months, every 6 months?
  4. Tax paying method: Whats the best method to pay the tax? Eg: Is it the PAYG Installments or Withholding or Whatonearth? Exact steps to login to ATO site and where to go - the login site for ato is confusing as to where and what to do - terminologies in the site are so confusing. Or even better - a method of paying tax using my business bank account via some sort of Bpay or account transfer would be great. Or in reverse paying it form ATO website using my business debit card linked to my bank acc. 
  5. Superannuation: as a sole trader am I required to pay super for myself or not required? 
  6. Special IT contractor data recording requirements: I run an IT business - I heard recently that from 1 July 2019 we will be required to keep track of IT contractors I use. What data do I need to keep as a record and does ATO have a template excel documnt as to what has to be kept as a record? 
  7. What have I missed: Is there anything else I missed in terms of "paying tax to Ceasar" (ATO)? 

 

Any experts out there, I would be very grateful for your help. 

As an IT startup with very little funds, I have very little resources to run around expensive Financial advisors or use Tax Accountants time. 

Thanks, cyberkite Smiley Happy

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Taxicorn

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Let's see if I can make this easy for you to understand.

 

(1) You will not be liable for paying tax until you lodge your first tax return as a sole trader.

The reason being is that until you know exactly what your taxable income is you don't know how much tax you owe.

Then the ATO will send you out a bill for the tax to pay.

 

The second year you are in business the ATO (because they don't know yet) will assume that your 2nd year will be pretty much the same as the first year and will send you out a bill for the same amount of tax you paid in year 1 but divided into 4 equal payments to be paid every 3 months. This is called a Pay As You Go system.

 

When you come to work out your year 2 tax liability, the payments that you made will be subtracted from the tax you owe in year 2.

If you have paid too much, they will refund you the difference and readjust the figure going forward to year 3 and so on.

If you have not paid enough you will have a debt for the balance and they will readjust the figure for year 3 and so on.

 

(2) As above but you can try using this https://www.paycalculator.com.au/ to estimate approximate tax.

 

(3) As per (1)

 

(4) As per (1) when they send you out the bill and the future PAYG instalments there will be payment options for you including Bpay.

 

(5) Entirely up to you if you want to contribute to your own Super.

 

(6) You are possible talking about Taxable Payment Annual Summaries  https://www.ato.gov.au/Business/Reports-and-returns/Taxable-payments-annual-report/

 

(7) Not sure what exactly what you mean....Smiley Happy

 

As you are such a tax noob person you really need to engage a Tax Agent/Consultant for at least the first one-two years of your business to ensure that you are doing everything and claiming everything that you can. The cost is tax deductible.

Good Luck

 

 

 

 

 

 

 

1 REPLY 1

Best answer

Taxicorn

Replies 0

Let's see if I can make this easy for you to understand.

 

(1) You will not be liable for paying tax until you lodge your first tax return as a sole trader.

The reason being is that until you know exactly what your taxable income is you don't know how much tax you owe.

Then the ATO will send you out a bill for the tax to pay.

 

The second year you are in business the ATO (because they don't know yet) will assume that your 2nd year will be pretty much the same as the first year and will send you out a bill for the same amount of tax you paid in year 1 but divided into 4 equal payments to be paid every 3 months. This is called a Pay As You Go system.

 

When you come to work out your year 2 tax liability, the payments that you made will be subtracted from the tax you owe in year 2.

If you have paid too much, they will refund you the difference and readjust the figure going forward to year 3 and so on.

If you have not paid enough you will have a debt for the balance and they will readjust the figure for year 3 and so on.

 

(2) As above but you can try using this https://www.paycalculator.com.au/ to estimate approximate tax.

 

(3) As per (1)

 

(4) As per (1) when they send you out the bill and the future PAYG instalments there will be payment options for you including Bpay.

 

(5) Entirely up to you if you want to contribute to your own Super.

 

(6) You are possible talking about Taxable Payment Annual Summaries  https://www.ato.gov.au/Business/Reports-and-returns/Taxable-payments-annual-report/

 

(7) Not sure what exactly what you mean....Smiley Happy

 

As you are such a tax noob person you really need to engage a Tax Agent/Consultant for at least the first one-two years of your business to ensure that you are doing everything and claiming everything that you can. The cost is tax deductible.

Good Luck

 

 

 

 

 

 

 

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