There are many benefits that come with running a small business in Australia. For one, you have full control in managing your sole proprietorship business, the flexibility to do the processes your way, and the freedom to make business decisions. However, one challenge that you have to deal with is your sole trader tax return.
This is because you have to pay taxes like any other business or individual, particularly the sole trader tax. This type is handled on an individual tax return wherein your business income is considered individual income. The rate is then aligned with the individual rate, which depends on how much you earn each year, as calculated by the Australian Taxation Office (ATO).
In this article, we’ll share how you can maximise your tax return as a sole trader.
Maximising your tax return as a sole trader
1. Understand the basics and know how to file
As a sole trader, you need a tax file number (TFN) and an Australian business number (ABN), which is similar to filing an annual income tax return. If you earn $75,000 or more each year, you have to register for goods and services tax (GST) and submit a business activity statement (BAS). During the filing process, you can lodge your returns online, accomplish it through a registered agent, or mail out a filled-out form. Understanding these basics can make all the difference in your tax obligations and returns.
2. Evaluate your taxes for personal services income (PSI)
It’s important to understand what the personal services income (PSI) entails. This involves individuals being paid for their personal efforts, skills, or expertise when rendering services, such as a copywriter, web designer, legal advisor, and management consultant. Check to see if the services you deliver based on skills or expertise can be classified under this income. If you run a business by selling products, your service isn’t considered PSI. Overall, it’s vital to see what counts as PSI and what doesn’t as it can impact your tax returns.
3. Take advantage of some deductions
As far as tax is concerned, one aspect you can take advantage of is a tax deduction. Yes, you can claim some deductions for the business expenses you incur as long as they are deemed assessable income. If you’re wondering what these deductions may include, consider the following examples:
- Business travel
- Vehicle expenses
- Maintenance costs of machinery, tools, or premises
- Home office expenses
Business expenses, such as advertising, banking and accounting, work uniforms, relevant courses, and subscriptions
Ultimately, these tax deductions can help you save thousands of dollars each year.
4. Practice bookkeeping and accounting
For proper tax filing, it all boils down to having proper bookkeeping and accounting, meaning that you should have detailed financial records throughout the year. Be sure to keep track of sales records, purchase and expense records, bank records, and payments to employees or contractors. When tax season comes, it’s easy to pull out all these records for the filling. Ultimately, it’s best to work with a professional accountant who can set your finances and taxes in place so that you have less to worry about.
Sole trader tax returns with New Wave
As a sole trader, tax season can be smooth if you have sufficient knowledge. To make the most of your returns, be sure to know the basics, assess your PSI, consider some deductions, and practice proper accounting. Ultimately, it’s best to hire a professional accountant who can help manage your finances and taxes at the same time.
Do you want to know more about sole trader tax and how to augment your returns? Let our professional business accountants in the Gold Coast look after your accounting and tax filing. We’re a professional accounting firm that helps businesses reduce taxes and maximise profits!
