Freelance accounting mistakes, oh I have made a few!
I have definitely learned the hard way with tax and accounting. And what happens when you delay or refuse to ask for help.
In fact, most of what I have learned about accounting, finances and even productivity comes under the heading “why didn’t I speak out sooner?”
My unhappy relationship with accounting began well before I started freelancing.
Photo by Maxim Potyomkin on Unsplash
I had to pay tax instead of getting a refund one year.
Back then, I had a full-time job and the new guy in accounting thought we’d prefer having the money in our pay instead of being taken out. After about half of the workforce hated on it, I saved up what felt like a million bucks (read $500 – hey, it was the 90s!) and paid it at the post office. I threw out the receipt.
The money got lost. The ATO hadn’t received it. The post office I paid it at closed down and moved away. I had no record of the payment.
Scared, I sucked it up, and paid the tax again.
What most people don’t understand – what I didn’t understand – is that I was already developing anxiety. Plus, I already had OCD.
And unlike the “Oh yeah, Veronica, just look at how orderly my stationery drawer is!” pop culture version of OCD, the real thing makes you develop irrational fixations.
From that point on, my unhealthy obsession was the ATO was going to get me.
Reality check, aisle three
I know this sounds surreal. I was and still am a functioning adult who budgets at work and understands the rational side of things.
However, I became scared it would happen again and developed strange money habits around that event.
- I overpaid tax. I pleaded with every finance department at every place I worked to take the maximum payable tax for my bracket out of my pay packet
- I got out of personal debt. I got rid of credit cards, have never had a personal loan, and even to this day, only have a mortgage (which took a lot of therapy, a financial planner, and breathing in paper bags to achieve)
- I began saving. Until that point, I had been cheerfully eating Mi Goering instant noodle lettuce cups in the last week of my monthly pay cycles
But it wasn’t all positive:
- I avoided my HECS debt entirely
- I didn’t do a tax return for almost a decade. That’s through two full-time employers and the start of my freelancing business
I was so stuck and sacred, I even missed out on the Rudd money given during the GFC, afraid to claim anything.
Oh, and almost coughing up vital organs in fear once the ATO finally caught up with me.
My experience is extreme. My brain is faulty, and I played ostrich for way too long.
But the lesson is simple for any freelancer.
The longer you leave this stuff and the more you invest in assumptions and fear, the worse it will be.
Learning lessons the hard way
The authorities in FailingToTax Land ordered me to pay $20,000.
I owed massive amounts of HECS. That was wildly overdue. The interest was through the roof.
And I owed tax from freelancing.
Thank goodness I mistakenly paid an extra $10K in my final years of employment.
That still left $10K payable by me.
They took HECS immediately without negotiation. That hurt. It took my savings.
The tax was on a payment plan.
Every month for a year, I handed that over to the ATO. I wasn’t earning enough to be registered for GST, and it damn near killed freelancing for me. It was hard. I ate a lot of lettuce cups with Mi Goering that year.
But it taught me some basic lessons about money and not being careless – or frightened by it- in the future.
Lessons learned
Sometimes in the Freelance Jungle, I sound like I have it all figured out. That’s because I learned the hard way with mistakes like this. And I don’t want you to learn like I did.
That means:
Know your limitations
For me, that translates into working with an accountant. I wouldn’t have dug myself out of the hole without my original accountant, Michael’s, help.
I am also lucky to have found Holly Shoebridge. I know tax and sorting my finances is a weakness and a mental health trigger. I could probably do my BAS or Income Tax Return; I don’t take any chances. It’s tax deductible, so why would I?
Don’t accept late payments
That year I had the debt to carry, being a bulldog with late paying invoices was essential. If I wasn’t, I would have defaulted on my very careful budget, and the ATO would have suspended the payment plan.
Making sure every client paid me on time taught me no one fires you if you bust their chops over late and unpaid invoices. Some even learn to get better with you.
I may not have learned that if I could afford to be less strict. But I am grateful I did.
Always use an accounting package
I started with Excel, and it was a nightmare and the most expensive part of the accounting process when I needed to get out of the hell I was in financially. Michael helped me sort things out, but I am so glad I found Rounded in 2017. I am not saying that because they support the Freelance Jungle, either. Other accounting packages weren’t intuitive.
If I hadn’t found Rounded, I would have quit the business long before now because of the stress finances stuff puts on me. But my obvious issues aside, I do not understand freelancers who don’t invest in accounting software and claim it as a business expense. Buy it in June to claim it back in July if you have to. But stop making it harder on yourself.
The ATO is not to be messed with
Michael acted like some accounting-shaped human shield to get me my payment plan. Things are tougher now. Today’s ATO wouldn’t let you get so far behind, and with good reason.
I still tense up when I need to deal with the ATO. But having a healthy respect for them instead of pretending they don’t exist is so much better.
Be proactive when dealing with them. Ask for what you need. And work through it.
Scrutinise non-professional advice
I asked for advice in a different Facebook group about my situation at one point. They told me I didn’t have to pay tax until I hit $75,000. This is utterly incorrect. In my fear state, I wanted to believe them, and ended up with a massive debt to prove it.
When you are frightened, tired, and hoping for the best, you can and will believe anything. It’s much better to check with a professional or a professional source, like the ATO helpline, then rely on other people’s repeated misunderstandings.
Be a continuous learner
I found out the hard way you don’t hit $75,000 and register for GST. Turns out, they average the sum for the year based on predicted earnings. I had to go back, tail between my legs and ask four months of clients to accept reissued invoices and pay GST at the $72,000 mark.
Last year, I didn’t account for a change in government policies and earnings. Last year saw me end up with a $5,000 debt and BAS payments that would make a rhino wince. But I got through it with my accountant Holly strategising with me and talking me through it.
On the plus side, it also gave me the idea for approaching Olly and Rounded to do a series on “whatever you do, don’t do what I do”.
Talk about a crisitunity!
But the thing I have most learned from any of this is be prepared.
- Invest in great people to help you
- Invest in wonderful tools
- Be prepared to talk to the ATO, online and on the phone
- Talk about your issues, too
Because we all learn from hearing each other’s story. Plus, it doesn’t feel you’re a big failing potato when you do.
Want to fix more of your freelance accounting mistakes? Grab a free month on Rounded and see what a difference it can make for you.
Please note: This blog post is sponsored by Rounded as part of an ongoing exploration of Rebekah Lambert’s approach to her freelance business. The idea is to open up Rebekah’s finances so she can improve – and help you, too. Any financial information provided serves as a general guide and should not be considered professional advice. For personalised guidance, consult with your accountant or financial advisor.