MY MONEY

How you can avoid tax bill shock

By

Multiple jobs are becoming the norm.

Whether it's a temporary second job to earn extra cash or starting a side business because it's something you're passionate about, there are a few issues you should think about when you're making extra money on the side.

Along with making sure you maintain a good work-life balance, there can be financial implications of having a second job - mostly tax related.

tax system reform tax bill

You need to be smart to make sure you don't get hit with a big bill at tax time. The simplest way to avoid this is by not claiming the tax-free threshold from both employers.

"Generally, the first $18,200 of income is not taxed each year. This is the tax-free threshold," explains Mark Chapman, director of tax communications at H&R Block.

"If there is more than one payer at the same time, the ATO generally requires that the tax-free threshold is claimed from the payer who pays the highest salary or wage.

This is known as the primary source of income. If you earn additional income, your second payer is required to withhold tax at the higher, 'no tax-free threshold' rate.

If the second payer does not withhold a higher rate of tax, this may lead to a tax debt at the end of the financial year."

Even if you do this, there is a risk that your increased total income may push you into a higher marginal tax bracket, says Chapman, which may lead to an underpayment of tax at the end of the year - still leaving you with a tax bill.

"The best solution to this is to ask one or both of your employers to increase the amount they deduct for tax from each pay," he suggests.

"Make an estimate of how much you will owe, and then ask them to increase it by a little bit more, to be on the safe side. Any excess will then be refunded when your tax return is lodged."

If your second income is not from an employer but a side business or a freelance role where tax isn't automatically deducted from your pay, make sure you set aside some extra cash to cover the tax you'll need to pay.

You can use an online tax calculator to help you estimate how much you might need to pay.

If you register your business for GST - which you'll have to do if you think it will have a GST turnover of $75,000 or more - you'll also need to submit quarterly business activity statements (BAS).

One of the extra deductions you may be able to claim is the cost of using your car to travel directly between two separate places of employment.

The key here is that it has to be a direct trip - so you can't go home first or stop at the bank or pick up groceries. And you can't claim a deduction if you work at home for one of the jobs.

Something else you should think about is superannuation. If you're entitled to super from your second employer, then ask if you can have it paid into your existing super fund rather than starting a new fund.

You don't need to be paying the two sets of fees of two different super funds.

RELATED STORIES

TAGS

Maria Bekiaris is editorial campaigns manager for Canstar and former deputy editor of Money. She holds a Bachelor's degree in business.
Post a comment
Link to something 0GentESO