Small Business Bookkeeping Deadly Sin #3: Not Separating Private and Business ExpensesKelly
If there’s one way you as a small business owner can get in the bad books of the Tax Office, is to jumble together your business and private expenses.
It is more important than most people realise that those two types of expenses are separated. This is because you can reduce your assessable income by claiming many of the expenses that happen during the running of your business as deductions. It becomes a problem for a lot of people when they use business and private accounts for both purposes. Be warned!
To ensure that you avoid all the problems that this can cause there are some steps you can do.
Separate Your Private and Business Expenses into Individual Accounts
Don’t Throw Away Your Receipts
Keep all your business receipts in some sort of folder or binder and put them in immediately so that you don’t forget or lose them, preferably in chronological order so that they can be found easily. It is also a good idea to write a description on the back so that you can easily remember what it was for. Nowadays many people find it more reassuring to scan each receipt and store them on a computer.
Use a Separate Credit Card for Your Business
Like with your accounts, have separate credit card for those personal and business expenses. The can reduce the confusion and makes life a lot easier if the Tax Office comes around.
Understand what is and isn’t a Business Expense
One of the first things you will need to know when separating your expenses is to know what actually makes up a business expense. Confusion is common for things like travel, food and entertainment expenses. The ATO website has some handy information about what business deductions, but if you need more help then you should seek out an accountant to assist you.
So now that you know that you need to keep your business and personal expenses separate, it is also very important to realise that records of all business transactions have to be kept for 5 years from the completion of the transaction. This includes expense claims. This is where small business bookkeeping software becomes useful. A program needs to be easy to use, records your expenses on simple columns and allows you to change everything, this will save you time and reduce stress.
Click here to read the introduction to “The 9 Deadly Small Business Bookkeeping Sins… And How You Can Avoid Them”
Stay tuned for Deadly Sin #4