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Keeping your tax and expenses in check when you are self-employed

Keeping your tax and expenses in check

Keeping your tax and expenses in check when you are self-employed

Running your own business means juggling multiple roles—building relationships, managing time, marketing your services, and, of course, delivering the work. 

However, one critical aspect that shouldn't be overlooked is how you keep your tax  and expenses in check when you are self-employed. 

Establishing good financial habits from the start will set the foundation for your business’s long-term success. Below, we'll explore key steps to keep your tax and expenses in check, ensuring that you’re on solid ground, especially when the tax season rolls around.

Understand Your Deductions

Knowing what you can and can’t claim as business expenses is crucial. 

Every industry has different rules, and what might be deductible for one business may not apply to another. 

For instance, if you work from home, you might be able to claim a portion of your home office expenses, such as utilities and internet, but there are specific criteria that must be met. On the other hand, if your business requires travel, those expenses may also be deductible, but only if they are directly related to your work.

It’s easy to miss out on legitimate deductions if you’re not fully aware of what’s available to you. This is where professional advice comes into play. By consulting with us early, you’ll be better prepared to track the right expenses and keep the necessary documentation. 

Additionally, understanding deductions isn’t just about saving on your tax bill; it’s about planning. Knowing what you can claim allows you to budget more effectively and reinvest savings back into your business, helping it grow. 

Regularly reviewing your expenses with a professional ensures that you are not missing out on opportunities to save and that your financial records are in order when tax time arrives.

Get a System Sorted

One of the smartest moves you can make as a business owner is to set up a robust system for tracking your finances. This includes recording expenses, managing invoices, and keeping tabs on your income. A well-organised financial system saves time, reduces stress, and gives you a clear picture of your business’s financial health.

There are several software options available today that cater to small business needs, many of which are cloud-based, allowing you to access your financial data from anywhere. 

These tools not only track expenses but can also integrate with your bank accounts, helping you automate tasks like invoice generation and expense categorisation. Some platforms even offer time-tracking features, which is particularly useful if you bill clients by the hour.

By staying on top of your finances daily or weekly, you avoid the year-end rush to get everything in order. It also reduces the chances of errors and missed deductions, which can be costly. More importantly, having a reliable system in place gives you peace of mind, knowing that your finances are well-managed, and allows you to focus on growing your business rather than getting bogged down in administrative tasks.

Another benefit of using a comprehensive system is the ability to generate reports that can offer insights into your business’s performance. These reports can help you identify trends, such as seasonal fluctuations in income or areas where you might be overspending. Armed with this information, you can make strategic decisions to optimise your business operations.

Stash That Cash

One of the most common pitfalls for self-employed people is not setting aside enough money for tax obligations. Unlike traditional employees, you don’t have an employer withholding tax from your paycheck, so it’s up to you to ensure that you’re saving enough to cover your tax liabilities.

A practical approach is to set up a separate savings account dedicated solely to your tax payments. Regularly transfer a percentage of your revenue into this account, treating it as non-negotiable. This way, when your tax bill is due, you won’t be scrambling to find the funds. 

In addition to tax, don’t forget about superannuation contributions. As a self-employed person, you need to manage your superannuation savings, ensuring you’re putting enough away for retirement. Superannuation contributions can also be tax-deductible, so it’s worth discussing with your accountant how best to incorporate this into your financial plan.

Budgeting for quieter periods is another important aspect. Unlike salaried employees, your income might fluctuate throughout the year, so having a financial buffer can help you navigate through slower months without compromising your financial stability. This buffer can also cover unexpected expenses, such as equipment repairs or last-minute business opportunities that require upfront investment.

Lastly, consider the advantages of paying yourself a regular wage. This not only simplifies your budgeting process but also helps keep your business and personal finances separate, preventing you from dipping into business funds for personal expenses. 

Keeping your accounts distinct allows for clearer financial planning and makes it easier to identify areas where you might need to cut back or where you can afford to invest more.

Taking the Headache Out of Your Finances

Managing your finances doesn’t have to be a daunting task. By setting up a reliable system, understanding your deductions, and planning for your tax obligations, you can stay on top of your business’s financial health and avoid the last-minute scramble when tax time arrives. 

If you’re feeling overwhelmed or unsure where to start, reach out to us. We can help you establish good financial habits from the beginning. 

Proper financial management is not just about keeping your tax  and expenses in check when you are self-employed and staying compliant; it’s about positioning your business for sustainable growth and success. Let us help you take control of your finances so you can focus on what you do best—growing your business.

Talk to us about setting up a system that takes the headache out of your finances. We can help make the process easier.

Tax Tips for small businesses 2022

Tax Tips for small businesses 2022

Tax Tips for small businesses 2022

Common Tax Deductions for Small Business

Are you claiming all the business tax deductions that you are entitled to?

There are many expenses common to most small business, and there are other expenses that are specific to the nature of the goods or services that your business provides.

  • Operating expenses include accounting, administration, advertising and marketing, office premises, office running expenses, trading stock, legal fees, insurance and vehicle expenses.
  • Employment expenses include salary and wages, fringe benefits, superannuation and training costs.
  • Other operating expenses may include things specific to your business, for example point of sale systems, freight, professional membership fees, professional education, protective equipment, tools or specialised software.
  • Capital expenses include machinery and equipment, vehicles, furniture and computers. Depreciation for these assets may also be deductible if the expense was not written off immediately.
  • Repairs and maintenance to assets and business premises.

Expenses must relate to the running of the business and providing the goods or services that your business offers.

Some common expenses that are not deductible are fines and penalties, provisions for employee leave, donations to entities not registered as deductible gift recipients and entertainment.

There may be some expenses you want to check such as private usage of business vehicles, prepaid expenses, bad debts, loss of stock and borrowing expenses. 

What’s on the ATO Radar for 2022?

This year the ATO will be taking a closer look at record keeping, work related expenses, rental property income and deductions and cryptocurrency transactions.

  • Keep records for all business transactions (income and expenses), activity statements and financial reports for at least five years.
  • Keep all records relating to employees, contractors and payroll for at least five years.
  • If your business is a company, keep all records for at least five years, including director meeting minutes.

Other Common Tax Return Issues

Work-related travel expenses

Travel fares, accommodation, meals. The travel should be directly related to income producing activities and you need records to verify the travel claims.

Motor vehicle expenses

Keep records for fuel, repairs and servicing, finance arrangements, insurance and registration. Keep a logbook to record private travel.

Fringe benefits

Have you captured all benefits provided to employees? Vehicle and entertainment benefits are usually scrutinised. This year you’ll need records of any extra benefits provided to employees because of COVID-19.

Superannuation

Have you paid the superannuation guarantee on time to employees’ super funds? The ATO will examine your Single Touch Payroll records including superannuation payments.

Current temporary tax depreciation incentives

There are currently three temporary tax depreciation incentives available to eligible businesses:

  • Temporary full expensing - for assets you start to hold, and first use (or have installed ready for use) for a taxable purpose, from 7.30pm (AEDT) on 6 October 2020 to 30 June 2023.
  • Increased instant asset write-off - if the asset was purchased by 31 December 2020, and first used or installed ready for use before 30 June 2021. The threshold remains at $150,000.
  • Backing business investment.

Talk to your accountants about what applies for your business.

Get Your Business Records Ready for Your Tax Return 2022

Get Your Business Records Ready for Your Tax Return 2022

Get Your Business Records Ready for Your Tax Return 2022

Organising your documents now will mean you can get your tax return completed earlier and access any refunds due or start planning for tax payments.

Getting your business records up to date and accurate will allow us to work with you proactively to plan for the coming year, which will continue to be unusual (and possibly difficult) for many.

It will also be one less thing to do when your normal business activity resumes later in the year!

What Records do you Need to Have Ready for your Tax Agent?

  • Have you bought or sold assets? If so, you need full details of acquisitions and disposals.
  • Have you taken out a new loan or other finance? You must have details of the finance arrangements and statements of monies owing at 30 June.
  • Check that any bonds or deposits paid or received have been allocated correctly.
  • Have you prepaid for insurance or other large business expenses that need to be apportioned to the following financial year? Make note of the portion applicable to the current financial year.
  • Do you carry stock? If so, you need to perform a full stocktake at 30 June (unless you qualify for the simplified trading stock rules).
  • List any doubtful or bad debts to be written off.
  • Review your debtors and creditors (accounts payable and receivable). Is the list current and correct?
  • Do you have loans with related entities? Reconcile the loans to and from each entity to ensure the same value is reported in the accounts of both entities.
  • Ensure that all payments to company directors have been correctly captured. Talk to us now if you want to make director payments before 30 June.
  • Provide records of any government grants received for COVID-19 or natural disaster impacts on your business.
  • Gather records of any COVID-19 related benefits that were provided to staff this financial year as there may be fringe benefits implications.
  • If contact details of business owners and key personnel have changed let us know.

This year, there may also be new elements to discuss with your accountant if you have received grants, refunds, credits or deferrals of business expenses and liabilities.

Remember you need to keep all your business records for five years, so store everything securely and where possible electronically for safety and ease.

ATO line of credit ending

ATO Line of credit ending


ATO Line of credit ending

As new reporting powers come into play, businesses are being warned against using the ATO as an alternative line of credit.

Debt Reporting Powers

In 2019, the ATO was afforded new debt reporting powers. While this took a backseat to the Covid-19 pandemic, the ATO is now cracking down on outstanding tax debt. 

Businesses without a payment plan, that are more than 90 days in arrears, and who owe more than $100,000 in tax are more likely to be reported to credit agencies by the ATO.

Impact on credit rating

In the past, business owners have sometimes used the ATO like a ‘line of credit’ by not paying their ATO commitments on time.

Taking this road is much more likely to have an adverse impact on your credit ratings and credit insurance limits. This, in turn, makes it more difficult to maintain or extend credit terms with suppliers.

Therefore, it's important to maintain a high level of communication with your creditors. 

Staying on the front foot

As business owners, if you owe tax, it's vital that you stay on the front foot with this ATO crackdown. We suggest you seek the advice of your BAS agent.

First Class Accounts Ovens and Murray, as your BAS Agent, are able to advocate on your behalf to deal with the ATO.

As Busy01 Consulting, we can also to assist with:

  • preparing a business plan
  • management advice
  • cash-flow planning and projection
  • systems development
  • business expansion
  • budget development
  • trading-structure planning.

Get in touch to discuss which options are best for your business. 

Work from Home Shortcut Claim Extended

Work From Home Shortcut Claim Extended

Good news if you work from home.

The shortcut method* for calculating work from home deductions has now been extended to 30 June 2021. (*Practical compliance guideline PCG 2020/3.)

The guideline covers working from home and incurring additional running expenses in relation to your income-producing activities during the COVID-19 pandemic.

Originally introduced in April 2020, the guideline was first due to expire on 30 June 2020 (which was then extended to September 2020, and then to the end of December 2020). Interestingly, unlike previous extensions, the PCG no longer states whether further consideration will be given to extend the latest end date.

The shortcut method

The shortcut method contained in the PCG provides a rate of 80 cents per hour for running expenses and only requires taxpayers to keep a record of the number of hours worked from home. This could be in the form of timesheets, rosters, a diary or similar document that sets out the dates and hours worked. A notation stating “COVID-hourly rate” will need to be placed next to your deduction for home office expenses in the 2019/20 and 2020-21 return.

All told, the PCG now applies from 1 March 2020 to 30 June 2021. Taxpayers eligible to use this new shortcut method are employees and business owners who:

  • work from home to fulfil their employment duties or to run their business during the period from 1 March 2020 to 30 June 2021 and
  • incur additional running expenses that are deductible under s 8-1 or Div. 40 of the ITAA 1997.
    Running expenses include: electricity, gas, computer consumable such as printer ink, cleaning expenses, telephone, internet, depreciation on computers and other equipment (e.g. chairs, desks, filing cabinets).

Taxpayers who use this method, cannot claim any other expenses for working from home for that period.

Example

Jay is an employee who is working from home as a result of COVID-19. He purchases a computer on 5 April 2021 for $900. He marks in his diary when he commences and finishes work each day and also the length on any breaks he takes. All told, from his records he calculates that he worked 355 hours through to 30 June 2021.

Provided he retains his diary entries and receipt for the computer purchase, Jay’s 2020-21 deduction under the new shortcut method is $284 (355 hours x 80 cents).

Claims for working from home expenses prior to 1 March 2020 cannot be calculated using the shortcut method, and must use the pre-existing methods as follows:

Method 2 - the fixed rate method. 

Under this method, you claim all of the following:

  • a rate of 52 cents per work hour to cover heating, cooling, lighting, cleaning and depreciation of office furniture
  • the work-related portion of your actual phone and internet expenses, computer consumables, stationery, etc
  • the work-related portion of depreciation on a computer, laptop or similar device.
Method 3 – the actual cost method. 

Under this method, you claim the actual work-related portion of all your running expenses, which need to be calculated on a reasonable basis.

The methods are not mutually exclusive across the financial year. It may be the case that you use more than one method during 2019-20 and 2020-21.

For example, you could choose methods 2 or 3 for the period July 2020 through to February 2021, and then choose the shortcut method for the period from March through to the end of June 2021.

Feel free to talk to us if you need more information.

Employee Payment Summaries are due soon – for the last time!

Employee Payment Summaries are due soon - for the last time!

The end of the payroll year will be here sooner than you think! We can help make the process easier by reviewing and validating your payroll figures prior to issuing payment summaries by July 14.

Once you start reporting under Single Touch Payroll, you will no longer be required to issue a Payment Summary. Your final payment summary to employees is due 14th July. After this date your employees can access their income statement through the ATO via myGov.

You’ll have two weeks from the end of the payroll year to issue your payment summary so it’s worthwhile preparing now to make the process easy.

Here’s what you will need:

Payroll Ch​​​​ecklist

  • Make sure you have all the necessary details for all employees, both current and any who have terminated throughout the year. The essential information is full name, date of birth, address, tax file number, and an email address if you are sending payment summaries electronically.
  • Review any terminated employees. Is the correct termination date recorded in your software? Are there any Employment Termination Payments (ETPs)?
  • Review allowances paid to employees and check which ones are required to be reported separately.
  • Review salary sacrifice payments to superannuation for Reportable Employer Superannuation Contributions (RESC) amounts.
  • Check any Reportable Fringe Benefit Tax (RFBT) amounts that should be included.
  • Do you plan to email payment summaries to employees? If so, advise employees of your intention to provide electronic versions and make sure the email address is secure and private. The electronic version must be non-editable and preferably generated directly from your payroll software.

Verify Your Payroll Numbers

It’s important to verify payroll figures before issuing payment summaries, in order to minimise the chance of errors and having to re-issue at a later date.

Once the payroll year is finalised at 30 June, you can then focus on analysing the payroll amounts for each employee and cross-checking against the numbers in your profit and loss accounts.

The end of the payroll year will be here sooner than you think! We can help make the process easier by reviewing and validating your payroll figures prior to issuing payment summaries.

Remember, this is the last year you will need to issue payment summaries. 

From 1 July, all employers must report to the ATO using Single Touch Payroll (STP).

Do you need more information about STP? We can help you set up your payroll ready for STP reporting.

Home Office

Do you have a home office?

Do you have a home office?

If you have a home office for your business, you should be able to claim some of the costs involved in maintaining, owning and using your home.

It’s important to be aware of what you can and can’t claim, and the record-keeping involved in making a claim.

How does it work?

In order to claim, the space you use must be used primarily for your business.

This doesn’t mean setting up at the kitchen table from time to time, it means having a dedicated space that you work from.

If you are selling online and storing stock, you may also be using other spaces in your house for storage or stock maintenance. Or, if you are making or creating products, you may be using other areas like your kitchen or workshop.

Costs that you might be able to claim include:

  • home office equipment
  • repairs to the home office or work-related furniture and equipment
  • cleaning expenses
  • any other day-to-day running expenses for your home office.

You may also be able to claim the costs of some trips in your car if these are from your home office to other locations where you are carrying out business.

The ATO has developed a calculator tool, to help you better understand what you might be able to claim. View the tool here.

Keeping track of your costs

Make sure you keep a record of all your expenses. It’s important to keep your personal and business expenses separate. Consider using online accounting software so the paperwork is kept in good order.

We can help you review your home office expenses to make sure these are included when you claim.

Talk to us, we can help.

All you need to know about single touch payroll

Single touch payroll regulations may require you to make some changes. Automation or outsourcing will make compliance less of a time burden for your business. We can help.

Single touch payroll (STP) is a new regulation that changes when and how small businesses report payroll activity to the Australian Tax Office (ATO). Businesses used to report this information to the ATO once a year. Now, they need to send a report after each payday. And those reports must be submitted digitally, using a very specific format.

Changes to when you report payroll

Small businesses used to finalise their payroll records at the end of the financial year and produce:

  • a payment summary annual report for the ATO, stating how much the business had paid in salary or wages, the PAYG withheld, and some superannuation contributions they’d made
  • a payment summary for each employee, stating what each employee received in wages or salary, the payroll taxes collected from their pay, and some superannuation contributions made on their behalf.

No more payment summary annual reports

Because you’ll be updating the ATO on a pay-by-pay basis, you won’t need to prepare a payment summary annual report anymore. You’ll just let the ATO know when you’ve made your last pay run of the financial year for your employees.

Payment summaries won’t need to be sent to employees anymore, so employers won’t be required to produce them. The ATO will use single touch payroll reports as the sole record of salary/wages paid, taxes collected, and superannuation contributed.

Your employees will be able to see the information that would normally be on their payment summary by logging on to myGov.

You’ll need to report payroll online

There’ll be no more paper forms for reporting your payroll activity to the ATO. You’ll need to submit the information online, using a specific format known as SBR (Standard Business Reporting). Depending on how you do payroll now, you may need to change software or find a service provider who can produce compliant reports for you.

When is the single touch payroll deadline?

Small businesses with fewer than 20 employees don’t have a confirmed deadline for switching to single touch payroll. However, small business advisors expect it to be compulsory from 1 July 2019. Businesses with more than 20 employees switched to single touch payroll on 1 July 2018.

Your options for switching to single touch payroll

To be ready for the switch, you’ll need to make sure you can submit compliant reports every payday.

Here’s what it means:

  • If you use online payroll software, it should be able to handle the job. Just make sure it produces ATO-compliant reports.
  • If you use desktop payroll software, you’ll need to find a service that can upload your payroll reports, convert them into the ATO’s required format and submit them on your behalf.
  • If you use spreadsheets or pen and paper, you’ll need to find a service to convert the data into a compliant digital report format and submit it on your behalf.

We can answer your questions about single touch payroll. Book an appointment now.

The low down on GST and your small business

Is your small business registered for GST? You might not be entirely confident of your projected earnings, so it’s fine to hold off until you’re sure you’ll hit the threshold. But it’s important to monitor your profit closely so that you don’t pay extra. #smallbiz #taxtalk

When you set up a new small business, you’ll have the option to register for GST. Here’s what you need to know about this responsibility.

The first thing you should do is decide whether you’ll register for GST immediately or wait until you hit the earning threshold of $75,000. When you start a new business, you might not be entirely confident of your projected earnings, so it’s fine to hold off until you’re sure you’ll hit the threshold. Once you do reach $75,000, you have 21 days to register.

Understanding your GST turnover

The $75,000 turnover figure represents your gross business income - not your profit. There are some exclusions, like sales outside of Australia, and any sales that are not for payment, meaning they aren’t taxable.

It’s important to monitor your profit closely because if you fail to register, you may have to pay GST on any sales since the date you were supposed to register. And because you won’t have included any GST in those sale prices, you could lose money. Additionally, there could be interest or penalties imposed.

Once you’re registered

When you’ve hit the threshold and you’re registered for GST, you’ll add the 10% amount to the price of your product or services. Don’t make the mistake of considering this money as part of your profit. You’re merely collecting it to pay to the ATO. It’s really important to establish good business accounting practices to make sure that you’re keeping this money separate.

We make dealing with GST simple - so you can focus on running your business. Make a time to talk to us about GST for your business.