Self-employed professionals have a different tax situation than employees. As a self-employed professional, it is important that you understand the tax regulations specific to your industry and how much you should be paying.
There are several factors that will affect the amount of tax that you need to pay as a self-employed professional in Australia. These include your income level and whether or not you have any deductions to claim.
Who is Considered as Self-Employed Professionals?
Self-employed professionals can include a wide range of different types of workers, including freelancers, consultants, independent contractors, and more. Generally speaking, if you are not employed by an employer or organization but set your own hours and work independently to complete projects for clients, then you would be considered self-employed or a sole trader.
Tax Rate for Self-Employed Professionals
One of the biggest factors that will determine the amount of tax that you need to pay is your income level. Tax rates in Australia vary depending on your annual income; as a general rule, higher earners will pay a higher percentage in taxes. Additionally, it is important to understand which tax bracket you fall into so that you can ensure that you are paying the right amount based on your individual situation.
Here is the income level classification with the corresponding tax rate for FY 2021-22:
| Taxable Income | Tax Rate |
| $0 – $18,200 | Nil |
| $18,201 – $45,000 | 19% for each $1 over $18,200 |
| $45,001 – $120,000 | $5,092 plus 32.5 cents for each $1 over $45,000 |
| $120,001 – $180,000 | $29,467 plus 37 cents for each $1 over $120,000 |
| $180,000 and over | $51,667 plus 45 cents for each $1 over $180,000 |
If you earn more than $180,000 per year, you will pay 45% in taxes. However, it is important to note that these are marginal tax rates; this means that you will only pay the specified percentage on the income that falls into that particular bracket. For example, if you earn $50,000 per year, you will not pay 32.5% of your entire salary; rather, you would pay $5,092 plus 32.5% for each dollar over $45,000.
As a self-employed professional in Australia, you will also need to pay a Medicare levy; this is a 2% tax that goes towards funding the country’s public healthcare system.
Deductions for Self-Employed Professionals
If you are self-employed in Australia, you may be able to claim certain deductions on your taxes. This can reduce the amount of tax that you owe and help to lower your overall tax bill. Some of the most common deductions that self-employed professionals are able to claim include expenses related to your work, such as
- equipment
- professional memberships and subscriptions
- tools, accounting services
- travel costs
- home office expenses.
Summary
If you are a self-employed professional in Australia, it is important to understand the tax regulations specific to your industry so that you can accurately pay the correct amount of taxes each year. Whether you need help determining your income bracket or calculating allowable deductions for your business expenses, there are resources available that can help guide you through this process. By taking the time to familiarize yourself with the tax regulations for self-employed professionals in Australia, you can ensure that you stay on top of your taxes throughout the year.
Taxleopard is an online tax solution and tax preparation app for self-employed individuals. You can easily lodge your tax using TaxLeopard’s application. Visit our app now.
