How to Maximise Your Sole Trader Tax Return As A Sole Trader?
So Tax season can get stressful for anyone, and if you are a sole trader, you would be facing many challenges related to tax. It is crucial to save every possible dollar for your business, and so it is imperative you start with strategizing your company’s tax return well before time. Knowing your finances well is the key to paying a lesser amount of tax and avoiding any penalties from the tax authorities.
With proper pre-planning and the right guidance from experts, you can certainly reduce your stress around tax and, at the same time, maximise your tax return. If you are a resident of Perth or its neighbouring suburbs, you can get in touch with the reputed tax firms and get expert advice from tax accountant Perth.
Now let’s understand what are the steps you need to follow to maximise your tax return as a sole trader.
Get The Basics Right On How To File
Being a sole trader, you will be needing an Australian Business Number(ABN) and a Tax File Number (TFN), similar to what one needs for filing an annual income tax return. Earning $75,000 or more will require you to register for Goods and Services Tax (GST) and submit your business activity statement (BAS).
So You can carry out your filing process by lodging your tax returns online, getting it done by a professional agent, or mailing out a physical filled-out form. Knowing these basics like the back of your hand will make significant differences in maximising your tax returns.
Keep Your Personal And Business Expenses Separate
Never use a single bank account for your personal and business finances. It might seem easier to handle all your expenses through a single bank account but would only add to your inconvenience during filing for tax returns.
Always prioritise maintaining a dedicated bank account and credit card for your business expenses as it will confirm you do not miss out on including any tax deductions.
Estimate Your Taxes For PSI
You need to understand what counts as personal services income (PSI) and what doesn’t. It often involves people getting paid for their personal skills, expertise or efforts when providing services like web designer, graphic designer, content writer, legal consultant or management consultant.
For example, your business involves selling goods and products, your service cannot be considered PSI. So, it is critical for you to understand this in detail so that it doesn’t affect your tax returns.
Maintain Digital Copies Of Your Receipts
You cannot rely on paper receipts for all your business expenses. You can use dedicated accounting applications for properly maintaining all your receipts at a single place and access them from anywhere, anytime.
Also, it is better to keep at least the records of the last five years of each and every business expense. You cannot claim a deduction if you don’t have the receipt of its expense.
Benefit From Various Tax Deductions
To maximise your sole trader tax return, you can benefit from certain tax deductions. You can claim various deductions for your business expenditures as long as they fall under assessable income. Some of the deductions that fall under this category are:
- Business travel expenses
- Home office expenses
- Expenses on vehicles
- Repair and maintenance costs of tools and machinery
- Expenses on marketing, bookkeeping, work uniforms, website hosting, subscriptions and relevant courses or training
Do Not Wait For The Last Minute To File Your Return
The more time you invest in planning your tax, the better it will be for maximising your returns. Do not wait for the last minute to complete your tax returns; you can plan it beforehand and complete your returns long before the due date. That way, your tax accountant will have enough time to evaluate a range of strategies for tax reduction, which may not be possible if you start at a later date.
It also saves you from the risk and hassle of going through a tax audit. Also, if you have a tax debt and are short of funds, you can apply to the Australian Taxation Office (ATO) for an arrangement of payment.
Maintain Your Books Properly
You cannot do proper tax filing without maintaining your books religiously. All financial records of your business should be jotted down in detail. Keep an efficient sole trader tax accountant who will track all your sales records, expenses and purchase details, bank records and remuneration to contractors and employees.
You should not try doing it on your own. A professional accountant would be far more competent in minimising your tax and provide valuable insight on where you stand compared to other companies in the industry.
Few Other Tax Tips For Sole Traders
- Be sure not to claim loan repayments as leases
- Ensure to consider the private percentage of expenses
- Remember to claim the expenses that you paid personally
- Only claim the expenses that are business-related
- Declare all the income received and maintain your invoices properly to stay on top of BAS
- Make sure you claim the interest on business and motor vehicle loans
By now, it must have been clear to you the necessary steps you need to take to maximise your sole trader tax return. You should research extensively to stay up to date with the ever-changing tax regulations of the country so that you do not miss out on anything when it comes to minimising your taxes.
If you want to file a tax return in Perth, approach the best tax and legal firms in the town.