You are required to ensure you maintain the correct business record in case you’ve received personal services income (PSI). If you don’t know about PSI rules, you can seek help from professional small business accountants. Keeping a record of your expenses and income is crucial to understanding what income goes through your organisation and why. Due to this fact, it is important to keep records explaining all financial transactions that associated with your tax matters, including personal services income (PSI).
Understanding Personal Services Income (PSI)
Personal services income is income obtained by an individual’s skills or efforts. PSI is earned by self-employed professionals, such as freelancers, consultants, and sole traders. The ATO has PSI rules for checking whether income comes under PSI, which depends on various factors such as the nature of the job performed, the ownership of equipment, and how much they have control over the work.
Record Keeping for PSI with Accountants for Small Business
Basically, you have to maintain records of all financial transactions in English for 5 years. The 5 years duration starts from when you prepared the records or completed the financial transactions. If you receive PSI, you have to maintain records that show:
• whether the income is personal services income (PSI)
• how do you work out if the PSI rules apply
• which costs apply to any received PSI
• the deductions you can access against the PSI.
If more than one person is producing PSI, you need to maintain records relating to each individual. Accountants for small business can help you keep the following types of records:
• tax invoices
• timesheet submitted to the client
• contracts with schedules
• diaries explaining what work was performed, for whom and when
• emails showing contract negotiation
• bank statements and receipts
• vehicle log books.
Importance of Distinguishing If Your Income is PSI
The PSI rules make sure that individuals who receive PSI can’t use certain tax deductions that are available to businesses. PSI rules apply to stop individuals from classifying their income improperly as PSI to claim deductions for expenses, reduce their tax liability or avoid paying taxes. By distinguishing if your income is PSI, you can be sure that you meet tax rules and getting benefits of any available deductions. Additionally, it can also help you avoid fines or penalties from the ATO that can be time-consuming and costly to resolve. To understand PSI rules, you can also reach an accountant near your area by searching ‘accountant near me’.
Examples of Personal Services Income
Are you getting PSI income and do PSI rules apply to you?
Individuals can get personal services income in different professions and industries. You can seek help from a reliable accounting firm in Melbourne where there will be expert accountants who can help understand whether PSI rules apply to you or not. The PSI rules apply to personal services business, such as:
• Consultation services are provided by management consultants, financial advisors, or IT consultants.
• Creative services are offered by musicians, artists, photographers, and writers.
• Health services are offered by massage therapists, fitness trainers, and dietitians.
• Technical services are offered by architects, engineers, and software developers.
• Trade services are offered by electricians, plumbers, and carpenters.
• Personal care services are offered by beauticians, hairdressers, and aestheticians.
• Training and education services are offered by trainers, tutors, and coaches.
• Professional services are offered by accountants, lawyers, and architects.
• Hospitality services are offered by caterers, chefs, and event planners.
If you are not sure how PSI rules apply to you or your business, then it is recommended to seek help from an expert tax accountant. You will be responsible for the income you report and deductions you access in your tax return, even if you seek help from an expert tax accountant to prepare it. Penalties may be imposed if you:
• don’t record your income correctly, or
• access deductions you are not liable to.
Conclusion
The blog outlines how an accountant can help you maintain records for PSI. If you are not sure whether PSI rules apply to you or not, then you can reach Reliable Melbourne Accountants.