For many sole traders, the idea of tax time automatically brings on a headache and wave of panic. But with a few tips and tricks, it doesn’t have to be a drama.  

We’ve done a bit of research, and these are some tips to try and make life less stressful and a few common mistakes to avoid, to help make tax time a breeze for sole traders. 

Keep your personal and business expenses separate 

As a general rule of thumb, it’s wise to keep your personal and business accounts separate. This helps to avoid any confusion, especially at tax time. It may seem easy enough to have them all linked together but it could impact your tax return. 

By paying for all your business expenses via your business account with a connected credit/debit card, it will help to ensure that you don’t miss out on any tax deductions. Just remember that if you pay for something business related with cash or your personal account, don’t forget to reimburse yourself from the business account so there is a record.  

Understand the rules about expense claims  

Generally speaking, when you spend money on things that are going to assist your business with making money, it will either be classified as fully deductible or partially deductible.  

Keep in mind that you may only be able to claim the portion that is used for your business. For example, your internet connection, you may use part of it for personal use and some for business. This is when you would only claim the business usage percentage.  

It’s always a smart move to keep track of your expenses, especially for things like your mobile phone. This way you provide evidence of your usage if your business was audited by the Australian Taxation Office (ATO). 

If you are unsure of what you can and cannot claim for your business, get in contact with your accountant or the ATO for the full details of your tax deductions.  

Make a habit of keeping your digital receipts  

These days almost everything is done online, including digital proof of purchases. Receipts are an important part of tax time, and without a receipt to show your purchase you may not be able to claim a tax deduction for that expense. 

Sole traders need to keep a record of their expenses for a minimum of five years, and as we all know paper receipts tend to fade and can easily get lost over time. That’s why scanning them digitally helps to ensure you have a safe record of them stored online.  

Plan your tax time ahead  

Tax time is something that you really need to plan for and shouldn’t be left to the last minute. Being able to plan, means you can look at different strategies that will make it work best for your business, like making certain purchases for the business etc.  

Having a chat to your accountant is going to help make the process simpler and put you on the right track. Just make the time to get plans in place well before your tax bill may be due.  

Ask for help  

We’ve discussed it a few times, but your accountant is there to help you and your sole trader business at tax time. Not only will it save you precious time, but it could also save you money, with their expert advice and skills there to assist your business.  

Getting your accountant to look at the financial health of your business with things like profit and loss statements can help you to plan for the future and keep your business financially healthy.  

Some common mistakes to avoid 

These are some of the typical mistakes that sole traders can make come tax time: 

  • Claiming expenses that may not be business related 
  • Not declaring all of your income 
  • Not properly calculating the personal/private use portion of your expenses 
  • Not keeping track of your expenses 
  • Not claiming interest on things like business loans 
  • Mistaking loan repayments as leases 
  • Forgetting to claim expenses that may have been paid for personally  

Practicing good tax habits all year round 

Take the stress out of tax time by keeping these easy-to-follow processes in mind. By being consistent and organised with your finances all year round, you can save a lot of hassle come EOFY. 

  • Keep a record of things, keep them organised and regularly updated. This is where the assistance of things like online accounting software can help out 
  • Putting aside some cash for tax and GST if you are registered, can help to provide a financial buffer so you’re not left with a shock some tax time 
  • Hire an accountant  

Protect your business with business insurance  

While being prepared for tax time is one way to help your business financially, having the right kinds of business insurance in place is an extra measure you can take to protect your business and its financial future. 

The impact of a claim could cause a devastating blow to your hard-earned savings and even put your personal assets at risk. This is a situation no business owner wants to find themselves in.  

No matter what kind of sole trader business you run, all kinds of businesses are exposed to the risk of a potential claim occurring. That’s why it is vital to consider protecting your business with the appropriate kinds of insurance to suit your business’ needs. 

From protecting your business with Public Liability insurance*, right down to safeguarding things like your tools with Portable Equipment insurance*, business insurance is designed to help keep your business around for the long run. 

At Public Liability Australia, we take the hassle out of getting your business insurance sorted. Get multiple competitive quotes from selected leading Australian insurers are only a few clicks or a phone call away. Select the policy to suit your business and be covered in minutes.   

* This information is a general guide only and does not take into account your objectives, financial situation or needs.  As with any insurance, cover will be subject to the terms, conditions and exclusions contained in the policy wording. The information contained on this web page is general only and should not be relied upon as advice. 

Public Liability Australia is a business name of BizCover Pty Ltd (ABN 68 127 707 975; AFSL 501769)