Operating as a sole trader often means running a business alone. Between dealing with customers and managing sales, accounting can take a back seat. However, dropping the ball on your annual tax returns can be a pivotal mistake ending in bankruptcy.
Whether you file returns yourself or work with trade and construction accounting specialists, there are key tax pitfalls to avoid for your business to continually flourish.
Sole trader accounting
Submitting tax returns as a sole trader means reporting all business income on your personal return. In essence, you’re being taxed as an individual rather than a company. This means personal income tax rates are used which can result in a higher tax bracket than if you had been trading in a company.
Crucial tax errors to avoid
Avoiding fundamental tax mistakes is imperative to preventing damaging tax debts from the ATO, potentially leading to bankruptcy. Working as a sole trader may be a straightforward way of operating, but in order to escape the following common tax pitfalls it’s worth considering working with trade tax compliance specialists.
Not keeping money aside for tax
If you don’t have the funds to pay your tax bill come return season or BAS time, your small business could become cash strapped and lead to cash flow issues. If your turnover is $75,000 or greater, each customer should be charged 10% GST, and that money is not for your pocket, rather for collection by the government. Set aside these payments, as well as money for income tax payment, to avoid a shock bill later on.
Leaving returns until it’s too late
From not leaving enough time to prepare your return, to actually missing the required deadline for submission, delaying tax preparation until the last minute is a crucial error to make as a sole trader.
Late lodgement fees and penalties from the ATO easily build up over time, making hiring a trade tax specialist to keep your tax on track a wise long-term investment.
Mixing personal finance with business
While you may technically be submitting your work income and expenses as an individual, rather than a company, mixing your business and personal finances is a potentially devastating error to make. If you are operating out of only one bank account, you’re asking for trouble!
Open a separate account to keep business transactions clearly separated, and speak to tax compliance experts for tax tips on accurate sole trader bookkeeping and software.
Submitting an incorrect tax return
Whether your accounting system is chaotic (i.e. non-existent), or you’re careless with tracking business transactions, not submitting an accurate tax return is a crucial error to make as a sole trader. Should the ATO decide to investigate your tax mistakes, an audit can cost you a lot in time, money, and worry.
From managing receipts and ensuring each quarterly return is paid on time, the fiscal and commercial benefits of working with trade tax experts to guarantee a correct return are limitless.
Linc Accountants – your trade tax specialists
As leading construction and trade industry accounting specialists, Linc Accountants are highly knowledgeable about tax compliance for sole traders. Those working in trades have niche tax requirements, and a long-standing reputation built over 20 years as trusted bookkeepers for tradies of all career levels makes us the secure choice to avoid tax pitfalls for your company.
Contact us today for tax tips and personalised solutions to your trade accounting needs.