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Tax Mythbusters: The Best and Worst Tax Advice

Tax Mythbusters For Small Businesses: Debunking Common Tax Myths

June 14, 2023

As a small business owner, you face many challenges and issues that demand your attention on a daily basis. Whether you are dealing with limited resources, juggling multiple tasks simultaneously, or finding the balance between growth and day-to-day operations, your plate is always full. Moreover, when you factor in the complexities of robust financial management, it becomes clear why some small business owners resort to shortcuts or rely on untested advice.

QuickBooks recently surveyed 27 small business owners to uncover some of the best and worst tax advice given to small business owners and debunk common tax myths. Here are the tax time myths we debunked:

Tax myth 1: You can write off the cost of everything as a tax deduction
Tax myth 2: You don’t need to keep receipts .
Tax myth 3: Excel and spreadsheets are good enough
Tax myth 4: Don’t register for GST
Tax myth 5: Pay the ATO to balance all at once
Tax myth 6: Do your taxes throughout the year rather than all at once
Tax myth 7: Listen to a friend’s advice, not a professional
Where can small business owners find the best tax tips?
How can I prepare for tax time?

Tax myth 1: You can write off the cost of everything as a tax deduction

This is false! Instead of writing off the cost of everything and claiming more than you actually incur, you should identify eligible tax deductions you can claim as a business owner such as medical expenses, costs related to your working from home as well as education-related business expenses.

Example: Claiming unrelated expenses as deductions

Let’s consider Jane, a customer who operates a freelance carpentry business from her home. Jane once took a trip to Bali, to attend a massage therapy course. She was advised by a friend that she could claim the expense as an educational deduction. However, since the course was not directly related to Jane’s business, this was not an allowable claim. The misguided advice Jane relied on resulted in significant expenditure that Jane was not able to recover.

While certain training courses, licences or certifications are tax deductible, these expenses must relate to your work.

Tax myth 2: You don’t need to keep receipts

While business owners can claim up to $300 on business expenses without any receipts, it’s generally good practice to retain receipts. Over time, it becomes difficult to track your expenses. Using accounting software, such as QuickBooks, can assist you in keeping track of all your receipts efficiently.

Tax myth 3: Excel and spreadsheets are good enough

While Excel and spreadsheets may help with simple record keeping, the challenge with relying purely on Excel spreadsheets when managing your taxes is that they depend on manually-entered data, which can be time-consuming and prone to error. On the other hand, accounting software provides automatic updates and ensures accuracy. By using accounting software like QuickBooks, you can have peace of mind that your records are up to date with accurate information, allowing you to maximise your deductions.

Tax myth 4: Don’t register for GST

This myth is partially true. While not every business needs to be registered for GST (goods and services tax), penalties can apply if you fail to register for GST when required to do so. You must register for GST and pay taxes when your business has a GST turnover (gross income from all businesses minus GST) of $75,000 or more. This is commonly known as the GST threshold.

Keep a firm eye on your assessable income, or in the case of your small business, the revenue earned. If you fail to track your assessable income regularly, you may not realise when you have passed the GST threshold. One survey respondent shared their experience of not monitoring their income. This led to their accountant requesting GST payments for the entire preceding year.

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Tax myth 5: Pay the ATO balance all at once

Some small businesses prefer not to pay your taxes to the ATO all at once as this can create financial strain on your business. Instead, you can plan ahead and allocate time to make regular payments as you go.

If you’re looking for a comprehensive and robust financial solution that can assist you to:

accurately record and manage all your tax deductions and claims,
organise and file all of your business receipts, and
stay updated on any changes that impact your business financially, including changes to deductions and claims that may be made,

make the switch to QuickBooks accounting and expense management software to help you prepare for tax time and gain confidence in managing your business finances effectively.

Tax myth 6: Do your taxes throughout the year rather than all at once

This myth is true! It’s never too early to work on your taxes. In fact, working on your taxes throughout the year, and paying close attention to your financial statement and balance sheet will help ease the burden of a large tax bill at the end of the financial year. Ensure that you have a good understanding of tax requirements for small businesses.

One of our survey respondents said:

Even though tax season only comes around once a year, this needs to be a year-round conversation. At the very least, try to meet with your tax agent once or twice a year to get a comprehensive understanding of the overall picture. No matter how dire you think your situation is, staying silent is worse than showing a willingness to comply.

Tax myth 7: Listen to a friend’s advice, not a professional

Always seek guidance from a qualified professional, such as an accountant, when making decisions regarding your business and taxes. Our survey respondent said to do otherwise, would be considered “penny wise, pound foolish” which simply means being cautious and economical in small matters while being wasteful in significant ones.

Example: Following tax advice from friends can expose you to liabilities

One of our survey respondents received advice from someone they met at a party about how to pay themselves a smaller income to avoid higher individual income tax. Unless such advice comes from a qualified professional, following it can expose you to liabilities for which claiming ignorance is not an excuse.

Occasionally, as information moves around from one person to another, it can undergo slight changes that may alter the meaning quite significantly. Be clear about why you follow a particular business practice and ensure it is supported by sound reasons. As one of our survey respondents aptly noted:

Tax is like a case of Broken Telephone Chinese whispers

Where can small business owners find the best tax tips?

The best tax tips can be obtained through a number of channels. The key factor is to ensure the authenticity and veracity of the advice provided. You can rely on advice and tips provided by trustworthy sources such as:

Government websites such as the official website of the ATO
Accounting firms specialising in tax planning and tax strategies
Specialised seminars, workshops and courses on tax planning and updates offered by Qualified finance professionals
Books written by finance and tax specialists that provide guidance and advice on finance and taxation

For even more valuable tax tips, check out QuickBooks’ blog post on how to save on tax in Australia.

How can I prepare for tax time?

Tax time refers to the period when you need to lodge your tax return. Lodgement of your tax return, in Australia, falls on 31 October each year.

There are a number of things you can do to prepare for tax time:

Maintain good records consistently throughout the year
Stay updated on key changes or measures that may be implemented due to regulatory updates or economic changes
Be aware of processing times and any changes or new instructions that may affect timing and changes in any forms
Look out for tax time tool kits offered by reputable organisations, government bodies or professional associations that are qualified to offer tax and tax planning advice
Understand what you are required to do prior to the lodgement of your tax return and after lodgement

Tax time need not be stressful. Remember that the process does not end with the lodgement of your return. If you forget to include important financial information or need to correct your tax return, you may be able to amend your tax return even after it has been lodged. Learn more about how to amend a tax return.

For more guidance on tax time, check out QuickBooks’ end of financial year guide on making tax time less taxing and our comprehensive guide to lodging your tax returns.

Prepare for tax time with QuickBooks accounting software

QuickBooks accounting software is an excellent solution to assist you in preparing for tax time with GST tracking to lodge your Business Activity Statements online, expense management, invoicing and payroll features. QuickBooks helps sole traders and small businesses across various industries comply with their tax obligations and stay organised for tax time

Choose the plan that best suits your business needs, and start your free 30-day trial with the flexibility to cancel anytime. Simple. Intuitive. Seamless.

While every care has been taken to ensure the accuracy of the information presented as at 12 April 2024, Intuit is not providing you with professional advice and we recommend you obtain your own professional advice. Intuit is not liable for your use of the information presented.

Small business owner working on her clothes business at her office

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Tax Deductions in Australia - Tax Guide

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