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9 Essential Tax Tips for Freelancers

As a freelancer in South Africa, it is important to understand and manage your own finances and tax affairs. This means tracking your income and expenses, understanding your tax obligations, and ensuring you file your taxes correctly and on time. Freelancers can ensure their success, save on taxes, and maintain long-term financial stability by taking a proactive approach to tax and financial management.

Here are some tips that can help you:

  • Separate your personal and business finances. As a freelancer, unless you have registered a separate company, you will be operating as a Sole Proprietor. This essentially means your business income, net of deductible business expenses is included in your personal income on your tax return. You should, however, get into the habit of having separate bank accounts (and cards) for your personal and business finances. Not only will this help with record keeping for tax, it will help you keep track of your business finances, cash flow and profitability. It helps even if you use your cheque account for business, and your credit card for personal expenses only.

  • Tax-deductible business expenses. You can claim certain expenses that are related to your freelance work as deductions from your taxable income. These include office rent, equipment, stationery, internet, phone, travel, marketing, entertainment etc. Generally, an expense incurred to generate your freelance income will be tax deductible. Larger capital expenses like laptops, furniture or specialized equipment for your work can be deducted over 3 to 5 years, depending on the nature of the item. Travel expenses incurred for business purposes like travelling to a client meeting, or picking up supplies qualify as a deduction, you will need to keep an accurate logbook in order to claim, make sure you keep a record of your mileage readings at the end of February each year

  • Keep supporting documents. You should keep all your invoices, receipts, bank statements, and other documents that prove your income and expenses for at least five years after filing your tax return. SARS may ask for proof of any expenses or receipts at any stage. Failure to provide such proof may result in expenses being disallowed and/or incurring additional tax.

  • Save Monthly for Provisional Tax. Since you are not earning a monthly salary, you have to estimate your annual tax and pay provisional tax twice a year, mid year in August and at the end of the tax year, in February. You should set aside a portion of your income every month to cover these payments, preferably in an interest bearing account, separate from your regular day to day accounts. Both payments (August and February) should equal at least 90% of your total tax for the year in order to avoid penalties.

  • Use the third provisional tax date. While the first 2 provisional tax payments should be at least 90% of your total tax for the year, you have another opportunity in September to make a ‘top up’ provisional tax payment to make sure you are within the 90% threshold, avoiding penalties penalties and interest.

  • Conditions for claiming home office expenses from SARS. If you work from home, you can also claim some of your household expenses as deductions. However, you have to meet certain conditions: your home office must be used exclusively and regularly for work purposes; it must be equipped with the necessary tools and equipment; and it must be your main source of income. The deduction will be limited to a pro-rata of the home office floor size in relation to the total size of your home, including outbuildings. The type of home office expenses are generally a proportion of the rent, utilities, telephone, internet, interest of bond, levies etc. Your rental payments, bond statements, utility and internet bills are all important records to keep in order to successfully claim home office expenses.

  • Use an invoicing system. Depending on the size and complexity of your business, it may be beneficial to start with a free invoicing system like Zoho Books or a similar program. This will allow you to easily generate quotes, create and manage invoices, and track receipts. This will help you accurately record your sales for tax purposes, as well as provide a professional and seamless payment experience for your customers. As your business grows, you may want to consider upgrading to a more comprehensive accounting system, such as Zoho Books, Sage Online, or Xero. These systems range from R300 to R800 per month and allow you to synchronize your bank account with the software, making it much easier to record payments and receipts.

  • Know when to register for VAT. If your business revenue (invoices) exceeds or is expected to exceed R1m in a 12 month period, you must register for VAT. You can also voluntarily register for VAT if your revenue exceeds R50,000 per annum.

  • Make use of your Medical Tax Credits and Retirement Annuity Deductions. If you have medical aid costs, you are entitled to a monthly tax credit of R347 for the 2023 tax year. The amount of the tax credit increases based on the number of dependents you have. In addition, you can claim a tax deduction of up to 27.5% of your income if you contribute to a Retirement Annuity. This can result in significant tax savings as it reduces your taxable income.

These are some basic practical tips for freelancers in South Africa. If you require further guidance or assistance with your taxes, consider consulting a professional tax practitioner.

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