A Quick guide to Filing Taxes for Self-employed and Freelance Creatives
Tax season is coming, which means that soon, we self-employed creatives will be poring through our old emails, bank statements and spreadsheets to determine how much income and business expenses to declare.
Must freelancers file their tax returns? Yes, regardless of your income level, as long as you earned money from your creative skills or from running a business between 1 January to 31 December last year, you must file this information with IRAS.
Also, without monthly pay slips from an employer, our notice of assessment (NOA) is what banks and government agencies will refer to when we apply for mortgage loans, car loans, business loans, subsidy schemes, HDB housing, etc. So to enjoy smooth and fair applications for such services and privileges, our NOAs must be in order.
Whether you’re new to freelancing and filing taxes as a self-employed, or you’ve intentionally forgotten how to submit your declaration to IRAS, we’ve put together a short guide to help you.
Before we proceed, note that this guide applies to freelancers who operate:
Under their own name
Under a sole-proprietorship registered with ACRA
In a partnership registered with ACRA
How to file taxes as a self-employed individual
As self-employed individuals, IRAS will direct us to fill out their Form B or Form B1. It’s not too complicated: there are only two figures that we need to report.
Total amount earned last year (“revenue”)
The amount in (1) minus allowable business expenses (“adjusted profit”)
To determine your revenue, calculate the total amount that you invoiced clients between 1 January to 31 December of last year.
Next, make a list of the business expenses that you incurred as a creative professional to help you perform your jobs. Then, check if they fall under what IRAS considers “allowable”. If requested by IRAS, you must be able to show why you need to incur the expenditure to earn income.
Some common expenses that IRAS deems as private and not business-related (therefore “disallowable”) include:
Cost of travelling to and from your home
Food, household and entertainment expenses for yourself, family members and friends
Insurance premiums
Medical expenses
Training expenses for yourself, although you can claim training expenses for your staff. You can, however claim for courses, seminars and conferences under course fees relief if your course is relevant to your profession
The 2-line statement format applies to freelancers who earn below $200,000. Those who earn more than $200,000 must fill out a 4-line statement, which requires them to also declare their gross profit/loss and allowable business expenses.
If you earned less than $20,000, you do not have to pay any taxes, although you are still required to submit your tax return.
Refer to IRAS’ website for the latest individual income tax rates.
How to lower your tax bill
Thankfully, there are perfectly legal ways of lowering our tax bills, and that’s through tax reliefs and tax rebates.
What’s the difference, you may ask?
| Tax relief | Lowers your total taxable amount E.g. Your adjusted profit is $100,000. After applying a $10,000 tax relief, your taxable income is $90,000. |
|---|---|
| Tax rebate | Lowers your final tax bill E.g. Based on a taxable income of $90,000, your tax bill is $4,500. After applying a $1,000 tax rebate, the final amount you must pay IRAS is $3,500. |
Apart from Form B, IRAS will also invite us to claim tax reliefs. For a better idea, fill out IRAS’ short questionnaire (on the left-hand side of the page) to see which personal tax reliefs apply to you.
If you have children, you can also enjoy a once-off parenthood tax rebate ranging from $5,000 to $20,000 per child, depending on their birth order. However, this is not entirely automatic as you will still need to inform IRAS:
How you and your spouse plan to split the rebate
How much rebate you want to claim this year, as you can choose to spread them out over multiple years
There are also several things we can do to maximise our tax reliefs. However, it’s too late to do them for this year’s tax filing as the cut-off date was 31 December last year. Nonetheless we can consider these ideas to reduce our tax bills for next year.
Note that IRAS limits our total tax relief to $80,000 so please do your math before going on a happy hour with these avenues.
Things you can do to lower your income tax include:
Topping up your CPF medisave (up to $8,000)
Topping up your CPF special account or that of your loved ones (up to $8,000 for yourself and $8,000 in total for family members)
Depositing money into your CPF supplementary retirement scheme (up to $15,300)
Spending up to $5,500 attending courses related to your profession with ACRA-registered entities
Donating to registered charities and IPCs (250% of donation value)
The importance of good financial discipline
Computing our business incomes, expenses and tax reliefs doesn’t have to be too stressful if we’re disciplined with tracking them. A good invoicing software will make tracking your income a breeze, and a consistent practice of noting down all your business expenses can help to streamline your paperwork.
Now that you’ve read this article, you can consider setting aside time before end-March to sit down and organise your business’ financial documents. And for the coming year, do a quick review on how you can make next year’s filing smoother for yourself.
Want to know how else you can be a smart freelancer? Check out our “The Business of Freelancing” book on how to jumpstart your freelance career into a thriving business and subscribe to our podcast, Freelance Exchange!
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