Just like other small business structures, a sole trader business also needs proper planning and execution. Staff wages, marketing costs, business finance costs, and travel expenses are some of the expenses you have to bear. And like other businesses, here also you can claim tax deductions. It is highly motivational for new starters. But the thing is that everything cannot be claimed. To claim specific tax deductions, sole traders have to comply with certain rules and regulations set by the Australian Taxation Office. In this article, we discuss all those claims but we exclude private expenses as you cannot claim those.
What is a sole trader?
The name says it all. A sole trader is one of the four small business structures in Australia, where one proprietor runs his or her own business. The Australian Business Number that is issued by the ATO, gets linked to the owner as an individual. As this is not a legal entity, it’s your responsibility to look over all the financial and legal compliance. Computer repair services, freelance writing or graphic designs, photography, etc. are some of the examples of sole trader business.
How does the tax deduction work?
A standard formula is used by the Australian Taxation Office or ATO to figure out the taxable income. According to this formula, tax is deducted from the assessable income. The income that is taxed or the income that you can get most from your business is called the assessable income.
Tips you should consider while filing for a tax deduction for your sole trader business
It’s true that you can claim the maximum expenses that are utilized in running the business, but here are some tips we suggest which will make your tax accounting easy. There are many tax accountants Perth who can help you file the tax deduction smoothly.
You should keep the business and personal expenses separate
As a sole trader is not registered as a legal entity, and the ABN is linked to the owner, you may think that you can have just a single bank account and credit card for both your business and personal reasons. But, you should never commit this mistake. This can effectively affect your tax return. Therefore, if you do not have your business account, you should get it opened as early as possible. If you really need to pay for some business-related cost with cash or from your personal bank account, you must reimburse the money from your business account immediately after to keep the record.
Know all the rules regarding expense claims
It is crucial to know that you can claim only that portion that you have used for the definite purpose of your business. You can get it understood from an example. Say, if you use your mobile phone for both personal and business use, you can claim only that percentage of your bill that you have used for making client calls or other business calls. Another expense that is often ignored by business owners is the use of a vehicle that is privately owned.
Many business owners use their cars to use in personal causes and also quotes, collecting mail, business supplies, or banking works. If you do such a thing, it is better if you maintain a logbook as proof of business use or business kilometres. Maintaining a logbook or any kind of record is the most important thing here. You should do it for other reasons too, like home internet or electric uses.
Keep digitalized versions of work-related copies
In a business, lots of confusion arise surrounding the requirements for receipts. According to experts, many business owners do not bother to keep a receipt when the expense is less than an amount of $82.50. But it is applicable for only GST purposes, and not for tax. In fact, you cannot claim a tax deduction for a certain cost if you do not have the receipt. In all businesses, these records should be kept for at least five years. And as paper receipts tend to get lost or faded, it will be better to keep a digitalized backup, especially for an audit. There are many apps that you can use for this purpose.
Don’t wait till the last minute
One of the important steps you should follow is not to leave all the tax planning and returns till the last minute. It is always better if you plan in much advance. It will allow you to get access to a wide range of tax deduction tactics that you may not be able to access at a much later period. For this stage, you can think of keeping an efficient sole trader tax accountant. Experts even recommend that sole traders should complete the task of filing their returns much before the due date, even if there is anticipation about the tax bill. They suggest it because sometimes the bill becomes less than the sole traders usually anticipate.
You should not commit these tax-time errors
Sole traders make some common errors at the tax time that can lead to heavy losses and penalties. These mistakes include not declaring all the received income, claiming non-business expenses, no maintenance of a logbook, thus limiting the motor vehicle claims, and not including the proportion of private costs. In addition, they also do not claim the interest on business loans and motor vehicle loans, wrongly claim the loan repayments as leases, and also do not claim those costs that they had paid from their personal accounts or in cash.
Some precise tips
Finally, we give some last-minute tips that may help you get the critical factor here.
- You should use online accounting software to keep the records in proper order.
- Should keep the GST and tax separate so that you do not meet any unexpected situation at the tax time.
- You should appoint an expert accountant. He can save you more time and money.
Where can you get help?
Now you need professional help, right? So, this is the time you should get in touch with Accountant Perth, who has a good number of professionals to give you proper guidance for sole traders accounting and tax.