“I’m looking forward to filing my taxes!” said no new freelancer ever. It’s more like a flurry of thoughts: Which form do I fill in? Was I supposed to keep track of my invoices? How? Do I get to claim tax on certain items? How do I do a final calculation and… what if I fill in the wrong details without knowing! Aaaaagh!
Thankfully, we have accountants to the rescue. In this episode, we cover the basics about filing and paying taxes as a freelancer / solopreneur in Malaysia. Also featured is Sean Lai, a fellow freelancer who provides accounting consultation and services under his company, Above Ace Accounting. Sean helps us understand the tax filing process a better and addresses a handful of concerns that newbie tax paying freelancers may have.
To get further details on how to file taxes as a freelancer, this article is pretty helpful.
A friendly reminder: The due date to file your taxes for the year 2020 for resident individuals who do not carry on business (BE Form), is 30 April 2021 for manual filing in Malaysia and 15 May 2021 via e-Filing in Malaysia. The deadline for resident individuals who carry on business such as full-time freelancers (B Form) is on 30 June for manual filing and 15 July for e-Filing. You can access the e-Filing portal here.
Here’s a list of tax exempted items for residents individuals in Malaysia for the Year 2020.
We also love this A to Z glossary of tax terminologies. Refer to it before your next social gathering in case you end up stuck with someone who enjoys talking about taxes!
Let us know what you think of this episode in the comments section! If you have any questions, ask away in this form.
I think when I started out, I did not know how to do my invoice numbers properly as well and I had to get an accountant’s advice for that
As long as the expenses is justifiable, the cost is tax deductible. But in our situation as a freelancer some of those expenses related to personal usage, we can only do an estimation of the cost allocation based on percentage.
Hi, everyone, its Jeannette and Sarah. And this is Solo Sync, a podcast for the curious solopreneur where we discover simple solutions to keep enjoying what we do together.
One of the scariest things about managing my own finances as a freelancer is paying taxes. I’m not a numbers person at all. So even filing my tax returns as a full time employee felt a bit daunting. In Malaysia, our government forms are mostly in the Malay language, which some people like myself may not be very fluent in. Even in English, many terms are foreign to me.
And when you start to own your own business, the forms that you need to fill up are different. There are so many more forms like you know, for an individual, if you’re filing your taxes, you fill out one form or something like that. But if you’re running a business, if you’re employing people, you have things like your employees EPF, Socso, their tax deductions and all that to take care of. And that’s why I always recommend hiring a tax accountant to work with or even an accountant to work on your day to day business for you, but they’re especially important during tax season when your taxes are due.
So we’re gonna cover the basics about paying taxes in this episode with advice from Sean, a freelancer accountant whom we both know. He’s also a director and shareholder in a Singaporean accounting firm that operates in Malaysia.
He’s also a business investor, he invests in potential businesses and he grows the companies he invests in by providing accounting and financial advice to the owners.
So before we get into which tax form to fill out as a freelancer or sole proprietor, my first question would be, what accounting habits should freelances keep throughout the year in general?
Keep your receipts, all of them. Like Sean says,
I will say that almost all the receipts seems to be related. Because when we work as a freelancer its very hard to differentiate between what we use for work and for personal. So we could be 24 hours linked to our work and working from early morning up to midnight time. So all these are actually expenses that I might incur. So over here, the receipts are not necessarily just for our expenses, it could be for our assets as well.
So assets would be things like your office furniture, your computers, maybe even your car. So these are things that you have receipts for, and they may look like expenses, but it actually goes into your balance sheet as assets. So they’re actually what gives your company value as well, because they’re things that you can sell in exchange for money. Whereas expenses would be things like your food, or like maybe you need to buy stationery. Actually stationery is iffy, I think they could be considered assets as well. But you know, other expenses like driving, you need to drive somewhere for a meeting. And the petrol is an expense. That’s how I think of the difference between assets and expenses.
Basically, expenses are things that you can’t sell after you’ve used it.
Yeah! I guess so. Yeah.
Going back to keeping receipts right… I find that the ink on receipts fade over time and hardcopy documents really take up too much space. So I asked if I could just keep soft copies. And the answer was no.
It would be best to keep the soft copy and hardcopy. Okay, the reason is that the soft copy is everything for us to use when the government wants to have a look on that, we need to provide in the hardcopy. So all those invoices to and from we are providing to our clients and even from our suppliers we keep everything.
Right. The other question I had was about numbering your invoices and quotations. I started out on the wrong foot. When I first started freelancing, I was giving different labels for each different service I provided. See, I’m a photographer, I’m a writer and a social media manager. And I labeled each of these different types of invoices differently. I kept the numbers consistent, of course for each category, but it still worried me for a while because I later learned that the best practice is to keep it all consistent. Thankfully it works for our tax system too.
For example, you put it as “Sarah”, the company, you put “SA” so that’s maybe it’s a photocopy you can put a “P” so that month and date follows slash with the numbers of this sequence. The next one is maybe another management things you still can put SA-M, continue with that date, and slash, continue with the numbers. Everything is okay. This is for our personal to use as long as a sequence number is followed.
Glad that’s cleared up. I think when I started out I did not know how to do my invoice numbers properly as well. And I had to get like an accountants advice for that. The other thing that new freelancers who aren’t from a finance background might find confusing is the difference between bookkeeping and accounting. But you know, you always hear people use the terms interchangeably. But actually, bookkeeping is simply keeping track of all the transactions happening our business. So it’s something that you can do yourself. And it is part of the process of accounting, but accounting itself is a much broader thing. You know, it involves things like auditing, taxation, it involves looking at the business numbers and interpreting it and communicating it in a way that non finance people will be able to understand as well.
Right, right. So bookkeeping is like a fancy term for keeping records.
Alright, let’s talk about tax exemptions. I wonder what kind of items we can get tax exemptions for and if there were any special ones for freelancers? Well, there aren’t. But as a person earning an income, the standard tax exemptions apply.
So things like petrol phone bills, internet, rent, and even groceries, anything you spend on for the business, you can get like tax deductions for it. And here’s the justification.
As long as the expenses is justifiable, the cost is tax deductible. But in our situation, as a freelancer, some of those expenses related to personal usage, we can only do an estimation of the cost allocation based on percentage. For example, we take petrol, petrol as expenses, we assume 70% of the cost is actually for the business usage. And 30%… of course, we might use it after we meet the client and went to the grocery and pick up something, of course that is another another business. So it’s hard for the government to justify anything. So we have this so called norm to decide that okay, the 70 and 30 will be clear for them, and they that they can accept it. That will be good for them.
So let’s talk about filing taxes in Malaysia now, shall we? If you’re wondering which form to fill in as a freelancer, since you’re not employed by a company, Sean has a pretty simple way of remembering.
I believe we all heard about from B and from BE, right, make it simple. BE… the E stands for employment. So if your main income is from employment, then more likely you will report under the form BE. So for me, the B itself stands for business. So if your main income is from the businesses, you are under form B. Of course, our people are confused when we are working and at the same time having an other source of income. Very easy. If you have a business or whether registered under the SSM or only using a personal trademark, this requires a freelancer, go for Form B. Just that.
Any final thing that freelancers should know about filing taxes?
There is this thing by our government called the CP 500. It’s like a tax installment based on your business estimates like so you estimate how much profit you’re going to make for the year and then you fill out the form and everything. And the first payment will be on the first of March. And then the other payments will be due on like specific dates that are spaced out throughout the year. And the amount that you pay each month will be based on that estimated income that you had filled up in the form. So this is so that you won’t feel the burden of paying a whole lump sum of tax during the next reporting period. So rather than paying say, 10,000 ringgit worth of taxes at the end of the year, or during the next tax period, you split it up into like 12 payments throughout the year. It’s a lot easier in the pocket, I guess.
Yeah, that’s quite helpful. Well, this was a load of information. I guess that’s why it’s good to have an accountant to work with, right? What are the benefits that you’ve had working with an accountant?
Yeah, oh, my god, there’s so many benefits. And I would actually say that any Freelancer who has a regular income, like you know, if you have a lot of retainer clients, like just get an accountant, they’ll free up so much of your headspace and clear out like your headaches over admin and finance. Because the thing about accountants is that they should be up to date on all the requirements. Like you know, what kind of payments are required, what kind of things are tax deductible? How can you start a business in a way that… they know all these like things that you need to do you know, and they will be able to provide advice on that. Remember that earlier, we said bookkeeping is just one of the processes in accounting. So that’s really the least of your worries, because anyone can do that, you know, but a good accountant would be able to help you think about increasing profits and decreasing costs as well, since they’re able to interpret the numbers, they will be able to see where your business is operating inefficiently. Like you’re spending too much on something or not making enough money from certain areas like you know, due to exchange rates and things like that, and they would be able to help you optimize.
And which stage do you think a freelancer or a solopreneur should hire an accountant?
If you can afford it, just do it. You can start small with maybe someone to just give you like tax advice or something like that. And if you’re running like a larger business, you might want to look into getting someone who can provide you more advice as well, which will cost more but totally worth it.
Cool. This has been super helpful even for me. Thank you all for listening. Show Notes for this episode are on our website, www.solosync.xyz. And if you’d like to get in touch with us to suggest a topic for an upcoming episode, you can email us at firstname.lastname@example.org. Follow us on Instagram for more updates too. Our handle is @solosyncpodcast. See ya.