Starting a new business as a sole trader is rewarding and exciting, but it’s crucial to make sure you structure your business correctly to get many tax benefits. If you are starting small, you are required to register as a sole trader, which is, importantly, an individual running a business. Running a business as a sole trader is an exciting journey, but it comes with a number of responsibilities, especially when it comes to managing tax obligations. It would be worth considering Melbourne accounting services if you don’t have time to pay close attention to your tax obligations. Staying on top of your business finances will keep your company compliant. In this blog, we’ll share some tips for avoiding tax mistakes.
What is a Sole Trader Business Structure?
A sole trader business structure is one of the most common business types in Australia. If you want to have full control over your business operations without any difficulty managing a company structure, then the sole trader business structure is ideal. As a sole trader, you need to manage all aspects of your business, from business operation management to meeting tax obligations. This means your business income is considered personal income, making it crucial to keep clear records and meet tax deadlines.
What Tax Mistakes Sole Traders Need to Avoid?
Mistakes can happen even after working hard to get your super and tax right. If you are a sole trader, make sure to avoid the following mistakes during tax time:
· Not declaring all income: This includes cash jobs or payments in-kind/barter deals (such as the value of services or goods received in exchange for your work), income earned outside your business.
· Overclaiming expenses: Don’t claim the part of an expense which is related to your personal use. Many sole traders overstate the cost of goods sold and other expenses, which is completely wrong.
· Calculating business losses.
· Incorrectly claiming and offsetting losses from non-commercial business activities against other income sources.
· Claiming PAYG withholding refunds.
· Incorrectly reporting personal services income (PSI) to get tax benefits.
· Not registering for GST when you reach or are likely to reach the GST threshold, or if you are in the taxi or ride-sourcing industry.
· Not keeping complete and accurate records. To ensure accurate records, opting for bookkeeping Melbourne would be a great deal.
How Do You Manage Your Sole Trader Tax Obligations?
· Separate your business and personal expenses
For effective expense management, make sure to separate your personal and business finances. You can open a dedicated business bank account to streamline tracking expenses, income, and GST – this approach will save time and effort during tax time.
· Keep accurate records
Make sure to maintain accurate records and keep them updated for managing sole trader tax obligations. Monitor business expenses, income, invoices, and receipts. You can also ask your accountant to use the right accounting software to make this process easy to handle while reducing the risk of mistakes. If you want stay in touch with accountants, you can also hire someone near your office by searching online for ‘accountant for small business near me’.
· Understand deductible expenses
Sole traders can claim deductions for expenses that are related to their business. For instance, sole trading business deductions include office supplies, professional development courses, tools, and even a part of your home office costs if you work from home. Keep receipts and ensure all expenses are related to your business.
· Plan for PAYG instalments
As a sole trader, you may have to pay PAYG instalments to cover your income tax obligations. These are pre-payments, quarterly, depending on your estimated income, reducing the risk of an increased tax bill at the end of the financial year.
· Seek professional help
It can be difficult to navigate tax laws, especially if you are unfamiliar with the sole trading business structure. Partnering with tax accountants who specialise in sole trader business can help you stay compliant, simplify your finances, and identify deductions.
Conclusion
Managing tax obligations as a sole trader should not be a stressful task, especially if you are partnering with Reliable Melbourne Accountants. Accountants can provide personalised advice and tax strategies to simplify tax obligations requirements.