Tax Tips to Save You All Year Round
Chances are, as a small business owner, you are not an expert when it comes to tax time. There is a lot of frustration around this time of year when you are trying to get everything prepared to send off to the ATO. You tell yourself that you will be better next year, more organised next year.
To help you achieve that goal and reduce some of that all-to-familiar tax frustration, here are some of the things you can do to both at tax time and throughout the year.
Keep Your Documents
Everyone has heard that you need to keep a record of all your transactions. It’s true that you should keep a written record so that you can claim deductions and also have them ready to give to the ATO if they request more information or are conducting an audit.
There are many ways to make this much easier for you than boxes of receipts that are kept in a faded, jumbled mess.
Computer and smartphone apps have been created to track spending, scan receipts and back up files to the cloud. The ATO needs written or electronic evidence of your expenses and a computer stored copy is sufficient. Many of these platforms use artificial intelligence to arrange and organise your documents, making them a breeze to locate. By backing them up to the cloud, you can store them for the 5 years required by the ATO, or even longer if you wish.
Make it a habit at the end of each week to spend 30 minutes making sure every transaction completed that week is recorded on accounting software, and documented and stored in the cloud.
Tax Claims Without Receipts
However, if you only plan on claiming a total $300 or less in work related expenses for the year, you might not need to provide written evidence for this. Tax claims without receipts can only be claimed for expenses you actually incurred during that year that were relevant to your employment.
If you know that your business would fall into this category (only a very small number would), then it is not so important to keep your records. However, we recommend that you do, just in case you do wish to claim more than $300 later on.
Other tax claims you can do without receipts include costs that do not generally create invoices or written records. For example, the use of a home office can be claimed at $0.45 per hour (or you can keep a logbook of costs), the laundering of work-related clothes for $1 per wash as long as you did not put in any personal washing, and fuel for work-related travel. Crucially, you will have to be able to show the ATO how you calculated these deductions.
Most of these tax claims without receipts have a maximum limit that you can claim. It is best to track these throughout the year, as it will be almost impossible to accurately predict how much expense you incurred months after it happened.
Staying organised is very important to reduce your EOFY headache. We have already mentioned keeping all your documents stored and sorted on cloud-based platform, but there is more you can do.
Firstly you should make sure that you are completely up to date with your legal obligations and requirements as a small business owner at tax time. Spend some time reading through the ATO website and other tax expert blogs to get the basics. You can also speak to a professional accountant who can make your tax obligations clearer and also go into more detail if you need. They can also bring to your attention the common things that you will be able to claim as a tax deduction and how you would do it. It is much better to do this early on so that you don’t get caught out around tax time.
Secondly, create reminders for deadlines to ensure you are never late. Set notifications when BAS, PAYG instalments and super contributions are due.
Sole Traders Tax
Sole traders have slightly different tax obligations to a company. As a sole trader it is very important that you know exactly what is needed from you as you are fully responsible for meeting you tax requirements. It’s important to understand the tax rates that Sole Traders are subject to.
At tax time, sole traders report all your income in your individual tax return using the business items section to show you income and expenses. This means that you would pay tax at the individual income tax rate – whereas small businesses with a turnover of less than $10 million have a company tax rate of 27.5%.
Sole traders have access to small business concessions available to companies, and can utilise a discount on capital gains tax. You also have to check to see if your income is considered personal services income (PSI). If it is, you have to comply with PSI rules which are slightly different from normal tax obligations. PAYG Instalments are also available for sole traders to help manage their tax payments.
Things to Look Out For
Borrowing money from your company can cause a lot of hassle at tax time and can end up meaning paying more.
Loans and advances to private shareholders are considered to be taxable unfranked dividends. If you do need to borrow company money, the best way to avoid this tax is to pay the company back in full before the tax return is due. Another solution is to enter a complying loan agreement, with capital payment, a set loan period and commercial interest payable.
You shouldn’t buy something purely to get a tax deduction. Remember, you are only receiving a small portion of it back. In saying that, it may be better to bring forward or push back the purchasing of an asset due to tax changes. Sometimes the government offers special tax rates in certain years.
For example, in the 2012-2013 financial year, the government offered small businesses an instant write off for small business assets up to $6,500 in value. This was then reduced to $1,000 by January 1st 2014.
Therefore if you were planning on purchasing an asset that was between $1000-6,500 in value, it would have been better for your cash flow if you purchased, installed and used it before 1st January 2014 rather than after.
To start taking control of your small business accounts – and save those tax-time headaches – try our small business cloud accounting software today.