Sole Trader Tax Rate: This Is How Much You’re going to Pay in 2023

Paying taxes as a sole trader isn’t very exciting, is it?

But if you think of it this way: you’re not just paying sole trader tax rate, you’re investing in the success of your own business! 

It’s like putting money into a savings account that will help your business grow and thrive.

Every time you make a payment towards your tax obligations, you’re taking a step towards financial stability and securing a bright future for your business. 

Plus, by staying on top of your tax payments, you’re demonstrating your responsibility and commitment as a business owner.

So, while it may not be the most thrilling part of running your own business, paying your taxes as a sole trader is an important and empowering way to contribute to the success of your enterprise. 

We say, embrace it as a necessary part of your journey towards achieving your business goals!

Come with us, we’re now going to show you the sole trader tax rates and the tax you may need to pay and how.

Overview:

• How much tax do you pay as a sole trader in 2023?
• Calculating your sole trader tax
• How do sole traders pay tax?
• When do sole traders pay their taxes?
• Setting up your PAYG
• Sole trader tax return
• What’s the Sleek scoop on sole trader taxes?

How much tax do you pay as a sole trader in 2023?

As a sole trader, the amount of tax you will pay in 2023, will depend on your income – this is the profit you earn from your business minus any allowable deductions.

Paying tax on their income is required by sole traders at their individual tax rates. 

The current sole trader tax rates for the 2022-23 financial year are as follows:

• Taxable income up to $18,200: 0% (tax-free threshold)

• Taxable income from $18,201 to $45,000: 19 cents for each $1 over $18,200

• Taxable income from $45,001 to $120,000: $5092 plus 32.5 cents for each $1 over $45,000

• Taxable income from $120,001 to $180,000: $29467 plus 37 cents for each $1 over $120,000

• Taxable income over $180,000: $51,667 plus 45 cents for each $1 over $180,000

Tax laws and sole trader tax rates can change from time to time, so make sure you keep up to date with these changes (your Sleek accountant can help here! Use our chatbox).

Don’t forget to check. There may be other taxes you may need to pay as a sole trader – such as a 10% goods and services tax (GST) if your annual turnover is $75,000 or more, or the Medicare Levy of 2% on your taxable income.

Calculating your sole trader tax

OK, we’ve established you may need to pay sole trader tax in 2023.

But how do you calculate how much tax to pay?

You simply need to work out how much income (income minus allowable deductions) you have earned. Don’t forget to take into account the tax-free threshold! 

Then you can calculate the amount of tax you owe based on the applicable rates.

Sounds easy enough. But where do you start?

Here are the steps to calculate tax on your income as a sole trader:

Step 1: Calculate your income

This includes all income earned from your business, including sales revenue, fees, and commissions.

Step 2: Deduct allowable deductions

Allowable deductions are business expenses that are necessary to earn your income, such as the cost of goods sold, rent, utilities, equipment, and supplies. Deducting these expenses will give you your business’s net income.

Step 3: Add any other income

If you have any other sources of income, such as interest, dividends, or rental income, add this to your net income to determine your total income.

Step 4: Determine your tax rate

Once you know your total income, you can use the applicable tax-free threshold and tax rates to determine your tax. Tax rates vary by country and are typically based on a progressive tax system, which means that higher incomes are taxed at a higher rate.

Step 5: Calculate your tax liability

Deduct the tax-free threshold, then multiply your income by the applicable tax rates to determine your sole trader tax. You may also be required to pay any other taxes or levies, such as GST, PAYG tax, or Medicare levy, depending on your individual circumstances.

It may be a good idea to consult with a qualified tax professional or accountant to ensure that you’re calculating and paying the correct amount of tax based on your specific circumstances.

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How do sole traders pay tax?

You’ve now worked out (roughly, maybe?) how much sole trader tax you need to pay.

How do you pay it?

Typically, sole trader tax on their income is paid through the Pay As You Go (PAYG) instalment system. 

• You will need to estimate your income for the financial year and make regular payments to the Australian Tax Office (ATO) throughout the year to cover your expected tax.

• You can make these payments either quarterly or monthly, depending on your preference and income level. 

• Then at the end of the financial year, you will need to lodge an individual tax return that includes all of your income and deductions, as well as any other personal income you may have earned during the year. 

The ATO will use this information to calculate your final tax liability, and any PAYG instalments you have already paid will be credited towards your final tax bill.

When do sole traders pay their taxes?

This is a great question, as you don’t want to miss the date and have the ATO come knocking on your door!

In Australia, sole traders are required to pay income tax and other taxes on a regular basis throughout the financial year. 

So, watch out for these key dates and deadlines for tax payments for sole traders –

Pay As You Go (PAYG) instalments: 

• 28 October

• 28 February

• 28 April

• 28 July

Sole traders may be required to make quarterly payments for PAYG through their business activity statement.

Income tax return: 

31 October

You will need to lodge an annual income tax return with the ATO by 31 October each year. If you use a registered tax agent (like Sleek!), you may be able to lodge your tax return later.

Payment of tax: 

21 November

After lodgement, if you owe the ATO you will need to pay any tax owing by 21 November, but this can vary depending on your lodgement due date.
Please keep track of these deadlines and ensure that you make your tax payments on time to avoid penalties and interest charges. 

Setting up your PAYG

If you’re not set up for your PAYG instalment as a sole trader, follow these steps:

Step 1a: Register for an Australian Business Number (ABN) 

You will need to have an ABN to set up your PAYG instalment plan. If you don’t have an ABN, you can register for one through the Australian Business Register website.

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If you already have an ABN, skip this step.

Step 1b: Estimate your income for the year

You will need to estimate your expected income for the current financial year. This will help you determine the amount of PAYG instalments you need to pay.

Step 2: Choose your instalment option

As a small business, sole traders have two options for paying PAYG instalments:

• Instalment amount: This is a fixed amount that you pay each quarter. You can choose the amount you want to pay based on your estimated income.

• Instalment rate: This is a percentage of your sole trader business income that you pay each quarter. The ATO will calculate the instalment rate for you based on your previous year’s tax return.

Step 3: Register for PAYG instalments

You can register for PAYG instalments through your myGov account linked to the ATO or by completing a form and sending it to the ATO. 

This is where you will need to provide your ABN and contact details, estimate your income for the year, and choose your instalment option.

You’re all set up now, ready to make your payments on time each quarter!

Sole trader tax return

As a sole trader, you are required to lodge an individual tax return each year, which includes your income and any other personal income you may have earned during the financial year. 

To complete your sole trader tax return, you will need to gather the following information:

• Your sole trader income and expenses for the year, including any GST you have collected and paid

• Your business-related tax deductions, such as expenses for home office, vehicle use, and professional fees

• Any income from other sources, such as salary and wages, interest, or dividends

• Any capital gains or losses you may have incurred during the year

• Your personal tax file number (TFN) and Australian business number (ABN)

What’s the Sleek scoop on sole trader taxes?

As annoying as it is, it’s important to pay your small business taxes on time to avoid penalties or fines. 

You can also claim some deductions, which means you can reduce the amount of tax you need to pay, but you need to keep good records of your business expenses to do this.

You know Sleek likes to make it easy for our business owners. So, here’s how to stay on top of your tax!

• Keep accurate records: Good records will help you accurately estimate your tax and claim any business expense or tax deduction you are entitled to.

• Set aside money for tax: Set aside a portion of your income to cover your expected tax. Regular PAYG instalment payments made throughout the year will help to avoid a large (surprise!) tax bill at the end of the year.

• Use accounting software: They can help you track your income and expenses, generate invoices, and prepare your tax returns.

• Stay up to date with tax deadlines: Stay up-to-date with all tax deadlines to pay GST and PAYG, by setting reminders or alerts to help you remember these important dates.

• Consult with a tax accountant: A qualified tax professional or accountant can provide guidance on managing your business finances, help you pay GST, identify any deductions you may be eligible for, your expected tax bill and meet all of your tax requirements.

Need help with your sole trader tax? Call Sleek to help you prepare and lodge your tax return as a sole trader. We can also provide guidance on the specific deductions and tax breaks available to you, as well as help you ensure that you are meeting your tax obligations and minimising your tax.

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