Tax guide: Calculating your taxable income
STEP 2 | Small business tax 101
Calculating your taxable income is essential to stay on top of your finances and avoid unexpected tax bills. Here, we’ll guide you through what counts as taxable income, how to estimate it, and the tax rates for 2024.
Key takeaways:
How to Calculate Taxable Income as a Sole Trader
To file your taxes, you need to understand your taxable income – the money you earned over the past financial year minus any business expenses. This includes income from full-time, part-time, or casual employment.
For your first year after registering for an ABN, you’ll need to estimate your own taxes. After you’ve lodged your first income tax return, the ATO will begin sending you estimates of how much they expect you’ll earn. Always double-check these estimates, as they may not accurately reflect your actual income.
Sole Trader Tax Rates for 2024
Here’s a quick look at the tax thresholds for Australian taxpayers:
| Taxable Income | Tax on this Income |
|---|---|
| $0 – $18,200 | Nil |
| $18,201 – $45,000 | 19c for each $1 over $18,200 |
| $45,001 – $120,000 | $5,092 plus 32.5c for each $1 over $45,000 |
| $120,001 – $180,000 | $29,467 plus 37c for each $1 over $120,000 |
| $180,001 and over | $51,667 plus 45c for each $1 over $180,000 |
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Tips for sole traders to Prepare Their Tax Returns and BAS
- Estimate Your Income Automatically: Regularly estimate your income to avoid a large tax bill at the end of the year. Set aside money for taxes each quarter.
- Track Expenses: Keep detailed records of all business expenses to reduce your taxable income.
- Multiple Income Sources: It’s common to have both a job and a freelance business. Your employer manages tax payments for your job, but you’ll pay tax on your freelance income. Report all income on your annual tax return and make quarterly PAYG instalments for your freelance income.
- Overestimate Taxes: When estimating your taxes, it’s better to overestimate. This way, you’re more likely to get a refund instead of owing money. Try using your gross income (before deducting expenses) for a conservative estimate.
- Make your own estimates:
- For Sole Users: Your Sole dashboard helps you track income and expenses. Use custom reports to estimate your taxable income.
- For Non-Sole Users: Use your invoices, bank statements, and receipts to estimate your earnings and expenses. Consider starting a free trial with Sole to simplify this process.
With Sole, you can simplify tax season with automatic tax estimates, GST tracking, instant reports, and more. Our partnership with Accountants Direct ensures you have access to expert advice, making tax time a breeze.
Disclaimer
This guide is for informational purposes and doesn’t constitute financial advice. Consult a tax professional for advice tailored to your circumstances.
Key Tax Terms
Quick guide on essential tax terms and dates...
Step 01Claiming Business Expenses
Maximize your deductions to lower your tax bill...
Step 03GST for Sole Traders
Learn how to manage and pay GST effectively....
Step 04Managing BAS & PAYG
Simplify your tax payments throughout the year....
Step 05Filing Your Tax Return
Ensure you have everything you need for a smooth filing...
Step 06
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Frequently asked questions
What is the difference between my gross income and my taxable income?
Your gross income is every dollar your business brings in before any costs. Your taxable income is what is left after you subtract your allowable business deductions (like equipment, travel, and marketing). You only pay tax on the profit, not the total sales.
Do I pay a different tax rate on my “side hustle” income?
No. In Australia, your business income is simply added to any other income you earned (like a TFN salary or bank interest). The total amount determines your tax bracket. However, because your employer has already taken tax out of your salary, your business income often feels like it’s being taxed “more” because it pushes you higher into the progressive tax brackets.
What are the resident tax rates for the 2025-26 financial year?
The 2024-25 “Stage 3” tax cuts remain in effect for the 2025-26 year. Here are the current thresholds (note these do not include the 2% Medicare Levy).
Why is my ATO estimate different from my actual earnings?
The ATO estimates your tax based on your previous year’s performance. If your business has grown significantly or if you’ve taken on more expenses, their estimate will be off. This is why using a real-time tracker like Sole is vital—it shows you what you owe based on today’s numbers, not last year’s.
Is it really better to overestimate my taxes?
Yes. As a peer-to-peer tip: it is much easier to manage a surprise refund than a surprise debt. By setting aside tax based on your gross income (before deductions), you create a “forced savings” buffer that protects your business cash flow during leaner months.