How to Maximise Tax Return on Your Second Job or "Side Hustle"

The "side hustle" is the big thing at the moment. Yes, you've got your day job but you've also got skills and knowledge that you know you can make money from, so – in addition to the nine-to five reality – you go off and set yourself up in business to boost your income, hone your skills and build a market niche. Maybe it will take off and you can kick the day job to the side. Maybe it will just tick over and you'll keep both running side by side. Either way, don't forget your taxes. Starting a second job comes with tax obligations that have to be met. Ignore them, and you can quickly run into trouble with the taxman. So, here are my four top tax tips for those starting a side hustle.

1. Declare your income

If you're running a business, all the income you earn from your business will be taxable. So, every sale you make will count towards your taxable turnover and will need to be declared on your income tax return. If you get paid in cash, don't forget to declare it. The ATO traps many businesses that – deliberately or otherwise – don't record cash sales.

In addition, if your turnover exceeds $75,000 – or even if it looks like it might exceed $75,000 in the near future – you'll need to register for GST. This 10% tax is added on to all your taxable sales and then needs to be paid across to the ATO every quarter. You can offset the GST you pay on your purchases and expenses against the GST you owe; only the net figure is paid to the taxman. If your second job is as an Uber Driver or Taxi Driver, you will need to register for GST irrespective of your turnover.

Keeping track of your income is essential so that means you need to keep good records. There are lots of accounting software packages out there that will help you keep on top of your figures but if you're not a numbers person, consider getting a professional bookkeeper to do the job for you. Sure, it's an extra cost but it's one less stressful task to worry about.

2. Claim your deductions

Every dollar you spend on purchases and expenses that relate to your business can be deducted from your profits. You then pay tax on the difference between your income and deductions.

So, make sure you claim all your business expenses, whether that's the cost of buying stock, heating your office, marketing your brand or traveling to meet customers (or any of the numerous other expenses you might incur).

When it comes to deductions, the key rules to remember are:

• Your business must have incurred the expense
• The expense must relate to your business and can't be private or domestic in nature (so you can't claim for the cost of your weekly groceries or your household bills)
• Any expenses that are partly business related and partly private or domestic need to be apportioned (which can be crucial if, for instance, you run your business from home and can claim home office costs)
• Make sure you can prove your business spent the money. An invoice or receipt is ideal, but a bank or credit card statement can also be used as proof in many cases.

Every business will claim different tax deductions depending on what line of trade you're in, but as a general overview, are you eligible to claim the following?

• If you're running a business from home, you can claim tax deductions related to the business portions of the following costs:
  • Utility bills
  • Phone bills
  • Internet
  • If you have a dedicated "business space" such as an office, a proportion of mortgage interest and rates
  • Don't forget the potential CGT implications if you run a business from home; part of the profit you make from selling your home may not be covered by the CGT exemption normally available to your main residence

• If you need to skill yourself up for your business, you may be able to claim a tax deduction for the cost of courses, training, seminars, conferences, etc – provided the cost is directly linked to your business income.

• If you're looking to start up a new business, you can normally claim tax deductions for preparatory work such as feasibility studies, market research, business plans and taking advice on the right structure.

• Don't forget superannuation. This is a particularly acute problem for women. The average Australian woman retires with around 35 percent of the super of the average man. For women aged in their 60s, the average super balance for wage and salary earners is $175,000 – double the average balance of $83,000 for women who run their own business.
  
  According to Kate Carnell, the Small Business Ombuds(wo)man, as women business owners tend to juggle work and other family responsibilities including care, they are more likely to own smaller businesses which are less likely to be sold to fund retirement.

• If your new business is based outside the home, sadly there are no tax deductions for child care.

3. Take advantage of the tax breaks

Tax isn't all bad news. There are incentives in the tax system that can be invaluable for new businesses if you know how to use them.

First of all, if your a small business (turnover less than $10 million) if and you need to buy any capital equipment for your business – such as a car, a van, computer equipment, office furniture or plant to manufacture a product – for the 2024 and 2025 years you can claim an immediate deduction for each item that cost $20,000 or less, so it pays to take advantage while it lasts.

In addition, whilst you're still assessing the feasibility of your new business, you might be able to claim deductions for expenses you incur, even though the business hasn't started yet (and indeed may never start if your research shows the business isn't feasible). Deductible costs can include professional advice on structuring your business, researching the viability of the business and developing a business plan.

4. Set money aside for your taxes

This might seem obvious but unfortunately failing to set money aside to pay tax is one of the most common pitfalls that new businesses fall into. Particularly if you're coming out of a paid job, you're probably used to getting your taxes deducted straight from your pay packet by your employer. But now you're in business on your own account, nobody is going to be deducting anything so you need to proactively manage your cash flow to set money aside for future tax bills.

Remember, with small businesses, cash flow is king. Even if you seem to be trading profitably, if your customers aren't actually paying your invoices, you'll struggle to pay your debts and one organisation you definitely don't want to end up in debt to is the ATO!

Updated 6 July 2022