“I think the real trap that people fall into is that, when they get paid, they don’t necessarily think about tax and they don’t think about how much tax they might need to pay on that income. And then obviously don’t forget about ACC: everyone who is self-employed, they always forget about ACC, and the first time they receive an ACC bill in the post, it usually comes as a shock.”
Fuller says people can also get caught up in claiming anything and everything as a tax-deductible expense.
“I’ve heard some horror stories, but you know, if you are there trying to expense a business jetski because you swear blind that you hold all of your business meetings on this jetski ... you’re going to be in a situation where you leave yourself open to IRD coming knocking.
“We had a customer who was expensing a proportion of their toilet paper. We had to say to this person, yes, this is fine, you can claim this [but] the amount of time you’re spending claiming this receipt for toilet paper is costing you in terms of your hourly rate – it’s far more than you’re recovering in the reduction in your income tax.”
Fuller says getting your pricing right is crucial – as many underbake their fees to get more work.
“It’s always harder to raise your prices than it is to sort of work out actually how much your time is worth and how much it costs you to produce whatever you’re being paid to do and to make sure you’re going to turn a profit for it.”
Listen to the full episode of The Prosperity Project for more on the traps to avoid, and ways to make self-employment sustainable.
The podcast is hosted by Nadine Higgins, an experienced broadcaster and a financial adviser at Enable Me.
You can follow the podcast at iHeartRadio, Apple Podcasts, Spotify, or wherever you get your podcasts. New episodes are released every Monday.
