Taxes are never anyone's favourite thing to do, but they must be paid. Working for a small firm or as a freelancer is similar. When it comes to tax season for your business, there are some crucial tips you should be aware of.
This blog post will go over the information you'll need and the best way to stay organised throughout the year so that there are no unpleasant surprises waiting for you on Tax Day in April.
Tax season is almost approaching, as you are certainly aware, and it can be challenging to stay current with all of the changes to the Australian tax system. Therefore, we are here to assist by offering some crucial tax advice for Australian SME's and single proprietors.
Tax Tips For Sole Traders
Read these professional advice for optimising your return to get a head start on the next fiscal year if you are a sole proprietor and need to organise your taxes. They will help you get the most out of the money you bring in.
The end of the fiscal year can be a stressful time for any owner of a business, particularly when it comes to the process of submitting their tax return. Be reassured, though, that with a little bit of forwards planning and some help from a professional, you may easily minimise the stress associated with tax time while also increasing the amount of return you receive.
We spoke with Chartered Accountant and small and solo accounting practise coach Amanda Gascoigne about how to make tax timeless, well, demanding.
The following is the most important tax advise for sole proprietors throughout the year, along with some common mistakes that should be avoided. Remember that the last day to file your tax return for the most recent fiscal year is October 31. The deadline for doing so has passed.
Key takeaways:
- You'll save time in the future by organising your documents and establishing sound recordkeeping procedures now.
- If you want to do your tax planning thoroughly, minimise the chance of an audit, and maximise your deductions, don't wait until the last minute.
- There are technological instruments to speed up the procedure.
- Consult with a licenced tax agent nearby for expert guidance.
Separate Personal And Business Costs
If you are a sole owner, it may appear to be more convenient to have a single bank account and credit card, but doing so is a mistake that could have an impact on your tax return. Gascoigne recommends that you make opening a business account a top priority if one has not previously been established for your company.
To ensure that none of your legitimate tax deductions are overlooked, she suggested keeping all of your business expenses on a separate credit card and bank account associated with your firm.
And what happens if you absolutely have no choice but to pay for a work-related expense with hard cash or from a personal account? Make sure you have a record of your reimbursements by using the bank account associated with your company.
Knowing the regulations for expense claims
"If you are spending money on products that assist you in making money in your organisation, then it will either be fully deductible or partially deductible," noted Gascoigne. "It will fall into one of those two categories."
On the other hand, it is essential that you only claim the portion of the profit that goes towards operating your business. You can only deduct a certain percentage of the cost of your mobile phone as a business expense, for example, if you use it for both company and personal purposes. If you use it just for business, you cannot deduct any of the cost.
According to Gascoigne, the cost of utilising a personal automobile is something that is commonly neglected. According to her, "this car may be utilised for banking, mail collecting, or company supply runs the majority of the time."
In the event that this is the situation, a logbook ought to be maintained as documentation of business use or company kilometres driven.
Gascoigne suggested keeping a journal for a sample period of four weeks for additional charges, such as mobile phone and home internet, in order to identify your regular pattern of use. This pattern can then be extended throughout the entire year.
Visit the business tax deductions summary page on the ATO website to see what can and cannot be written off.
Keep digital copies of any receipts for work
The requirement for receipts is widely misunderstood, according to Gascoigne.
Many business owners think they don't need a receipt for expenses under $82.50, but that rule only applies to GST, not to taxes.
If you don't have a receipt, you can't claim a tax deduction for a cost.
You must maintain these documents for at least five years. It's also wise to maintain a backup in case of an audit because paper receipts deteriorate over time and are simple to lose.
Start storing your receipts online by using Receipt Bank or MYOB's Capture App, according to Gascoigne.
Don't put off tax preparation and filing until the last minute
According to Gascoigne, beginning the process of arranging for your taxes before June 30 is typically recommended. This offers you access to a number of tax reduction choices that you otherwise might not be able to execute. If you did not have this access, you might not be able to apply these options.
When it comes to the tax preparation portion of the fiscal year, having a competent accountant is essential.
Even if a tax bill is anticipated, Gascoigne recommends that sole proprietors finish their tax returns well in advance of the deadline rather than waiting until the very last minute.
Because of this, they will be able to start saving money for both that year and the one that is currently ongoing.
She emphasised that if the amount was lower than expected, then they might be tossing and turning in bed unnecessarily.
What happens if you owe money to the government but don't have the money to pay it? You have the option of submitting a request to the ATO for a payment arrangement.
Avoid going it alone
If you haven't yet filed your return for the previous year or are making preparations for the upcoming year, you might think about getting some assistance from a tax professional.
Employing a professional accountant can help you save time and money, in addition to providing you with crucial information regarding the health of your business.
According to Gascoigne, the simplest way to ensure that your tax liability is reduced to the lowest possible amount is to have an accountant draught both your profit and loss statement and tax return for you.
Having the assistance of a qualified accountant can be of great benefit to you in reaching both your career and your personal goals.
She noted that accountants can assist with the creation of budgets, charge rates, and a great deal more. They are in a position to comment on how your results compare to those of other customers doing business in the same industry.
"Accountants are vital parts of your management team; you should look at hiring them as investments rather than expenditures,"
Avoid Making These Typical Sole Trader Tax-Time Mistakes
When it comes to filing their taxes, some of the most common mistakes that sole proprietors make, according to Gascoigne, are the following:
- Not disclosing all collected income necessitates keeping track of your BAS and invoices.
- Making claims for non-business-related expenses
- Not accounting for the share of personal expenses.
- Not maintaining a logbook, which may restrict your claims for motor vehicles.
- Not claiming interest on loans for businesses and vehicles.
- Erroneously classifying loan payments as lease payments.
- Not claiming costs that were personally paid for.
Several last-minute tax advice for sole proprietors
To lessen the strain of tax season, Gascoigne advises the following actions:
- Always use online accounting software to keep your records in the best possible order. This will ensure that you are able to keep track of your numbers during the entire year.
- To prevent receiving a bad surprise at tax time, set away tax (and GST if registered) throughout the year. You can determine how much money to set aside with the aid of your accountant.
- Use a qualified accountant. Someone with whom you can empathise, who will treat you with candour, and who will investigate every possibility for legally reducing your tax burden.
Some Essential Tax Tips For Sme And Sole Traders To Follow
There's no denying that for anyone running their own business, tax season can feel like a time-consuming burden. It might be a constant worry to stay on top of tax duties and prevent regulator audits.
The COVID-19 outbreak has significantly disrupted business operations, therefore it's more crucial than ever to prepare for tax season and maximise your return.
Here are seven crucial tax advices for small business owners, independent contractors, and sole proprietors at the end of the year.
Keep Your Accounts Up-to-date
Having up-to-date information about your company at your fingertips can be very helpful. Because of this, it's crucial to make sure you routinely reconcile your accounts.
Using cloud-based accounting software, like Xero, can make things much simpler for you to maintain accurate records. You will be able to get current data on your cash flow, gaps, revenue, and staff as a result (if you have any). In the long run, this can assist you in making quicker and wiser business decisions.
In order to assist you get through this difficult time, it may also make it easier for you to utilise government stimulus programmes like JobKeeper.
Know Your GST Obligations
Small business owners frequently fall into the trap of not understanding their responsibilities when it comes to Goods and Services Tax registration (GST).
If your income for the fiscal year exceeds $75,000, you must register for GST.
Additionally, you have just 28 days to register if you reach the $75,000 threshold. Don't put it off till the end of the fiscal year.
As a result, you need to keep track of your money all year round. You can use this to determine when to register for GST.
Another thing to bear in mind is that your tax return should include your income and expenses nett of GST if you have registered for GST. Instead, your Business Activity Statement (BAS) handles the GST component.
Take Advantage Of The Instant Asset Write Off
You can use a $150,000 quick asset write-off as part of the COVID-19 Government stimulus initiative this fiscal year.
Furthermore, it has been extended through December 31, 2020... so that you can deduct all of your taxes entirely when you buy any work-related assets now or in the future.
The programme is especially crucial for independent contractors who depend on tools, vehicles, and other assets.
Claim Work From Home Expenses
To be able to deduct those expenses from your taxes, your job from home must be income-producing and involve costs.
Here are some instances of expenses:
- cost of using utilities in a room, like gas and electricity
- cost of business phones
- office furniture and equipment, including desks, chairs, and computers, lose value over time (depreciate). You are entitled to a part of any equipment that is utilised for non-business reasons as well.
- depreciation (loss of value) of drapes, carpets, and lighting fixtures
- occupancy costs (such as rent, mortgage, interest, insurance, rates). These expenses for the space or workshop you utilise for your business can be claimed in part.
The percentage you can claim will be based on how much time you spent working from home during COVID-19 if you transferred your place of business there.
Don’t Forget Super Contributions
In past years, it was crucial to use your $25,000 concessional quota by the end of each financial year. Your income may have fallen as a result of the COVID-19 outbreak, but you can postpone the concessional superannuation cap for this year for up to five years, depending on when you anticipate earning more money.
It will be a successful tax plan as long as your marginal tax rate outside of super is higher than the 15% contributions tax.
You could be able to contribute $40,000 next year if you simply make a $10,000 contribution this year rather than a $25,000 one.
Your Income May Have Changed During COVID-19
The epidemic has in some way or another impacted the take-home pay of the majority of people.
You must include JobKeeper payments received by sole proprietors as taxable income for your business.
To claim deductions on wage payments, every small business owner must ensure that they fulfil their Pay-As-You-Go (PAYG) withholding obligations. This implies that in addition to paying the employee's salary, you must also be sure to withhold the necessary taxes and include them in your June BAS and PAYG payment summaries.
No Need To Go It Alone
Running your own business can be difficult most of the time, especially when it comes to handling your accounting and tax requirements.
Consequently, receiving the appropriate guidance can assist in releasing time and resources so that you can concentrate on expanding your firm.
You can stay away from frequent tax pitfalls that small business owners make by using professional assistance.
Tax Time Tips For Sole Traders
Tax season can be a little stressful, as is well known. For the sole proprietors and independent contractors out there, we thought we'd do something special just for y'all and put together a comprehensive list of tips that'll help you put your best foot forwards this year when it comes to filing your taxes and help you stay as stress-free and calm throughout the process.
Don’t Pull A Homer And Leave It ‘til Last Minute
How many people do this is astounding. The most frequent error people make when submitting a tax return is postponing it repeatedly until there is little time left to get it all done, and it's understandable why doing so might make it even more stressful than it already is. On the other hand, organising things beforehand makes the task much simpler.
Be Meticulous With Receipts
Did you know that you must save any receipts you use as deductions for a minimum of five years? Making careful to scan any physical receipts and keep them on your computer will make everything so much simpler (backing them up to the cloud, too).
Stay On Top Of Record-keeping
Yes, having to update spreadsheets on a regular basis is a real nuisance. However, keeping track of things throughout the fiscal year ensures that everything is current and prepared for action when tax season rolls around. If not, there will be a last-minute scramble to prepare everything by going over invoices, receipts, and other papers.
Know What’s Deductible
Some extremely fantastic tax benefits for sole proprietors were included in the government's most recent budget.
In addition to those, you must be well-versed in all the deductions that can be used to reduce the amount of tax you owe on your business income. Take the time to study about these to discover which applicable to your organisation because these will be entirely dependant on a variety of factors.
Don’t Push Your Luck
You might overhear other business owners and operators discussing instances in which they overstepped the mark with regard to deductibles and out-of-pocket payments and yet got away with it. Good luck to them, unless they get audited at some point in the upcoming years, of course.
Be confident in the information you provide the ATO; there's no need to worry and sweat over something that only cost you $100.
Back-Up Everything In The Cloud
This entails scanning all paper invoices, receipts, and other documents, placing them in a folder with all of your digital receipts and documents, P&L and other business-related spreadsheets, invoices, and so forth, and saving everything to cloud-based file storage services like Dropbox or Google Drive.
Put Money Aside For Tax Payment
You'll feel more at ease when tax time comes around if you make sure you have a respectable amount of money set aside to pay your tax obligation. Receiving an ATO request for several thousand dollars when you have none on hand is the worst!
Lodge Online Via MyTax
Utilize the ATO's myTax online tool to keep things as simple as possible; it's really the fastest and easiest way to submit (since, let's face it, who wants the process to take forever?!).
Get Expert Help From An Accountant
If you don't already have one, it's crucial to conduct some research and find an accountant who has some experience, particularly with sole proprietorships. If not, you can question them during your initial chat if this information isn't already available on their website (make sure you ask what their areas of expertise are before you tell them the type of business you run, But on, though).
Buy Business-related Assets To Reduce Your Tax Payable
As tax season gets closer, if you need to buy a few assets that will really help your business succeed, doing so now will help you pay less tax later on by reducing your overall taxable revenue.
- Properly claim children, friends or relatives you're supporting.
- Don't take the standard deduction if you can itemize.
- Deduct charitable contributions, even if you don't itemize.
- Claim the recovery rebate if you missed a stimulus payment.
- Keep track of your expenses and gather receipts. ...
- Covid tests could be a deduction. ...
- Find a registered tax agent. ...
- Determine your tax bracket. ...
- Work from home claims. ...
- Returns on books, journals and online subscriptions. ...
- A good deed rewarded with another.
- Claim All The Deductions You Can. ...
- Save Your Receipts. ...
- Make Charitable Donations. ...
- Prepay Your Bills. ...
- Put Money Into A Super Fund. ...
- Sell Off The Loss-Running Investments. ...
- Review Your Health Insurance.