It’s not uncommon for small business owners to dread the end of the financial year, especially if it means wading through a year’s worth of receipts. However, tax time doesn’t have to be this way. A few small changes to the way you to business can ensure tax time is easy. Here are seven common mistakes to avoid at tax time.
1. Mixing work and play
Waiting until tax time to separate your personal and business expenses will create a time burden that you can’t afford. Instead, ensure you have separate accounts and credit cards for both business and personal use. If you use accounting software, such as QuickBooks Online, snap and store any receipts you’ll need later for your return, and connect the software to your bank account to easily categorise online transactions as they happen.
2. Missing out on tax deductions
Expenses you incur in running your business count as deductions, which reduce your assessable income and, therefore, how much tax you pay. So it’s important to include all relevant expenses in your return – even those deductions that are often overlooked. In saying that, they need to be precise and backed up with receipts or transaction records. If you don’t, you could be audited and penalised.
3. Forgetting to declare overseas income
It’s not uncommon for small businesses to have overseas clients or customers, or perhaps you’ve even worked overseas for all or part of the year. It’s important to know what tax you may be required to pay when working overseas, so ask your accountant what they recommend.
4. Claiming full GST on mixed-use equipment
While you’re able to claim the total amount of GST you paid on an item you use solely to help you run your business, you can only claim a portion of the GST on mixed-used items. For example, if you purchase a car to be used half of the time in your business and half of the time for your own personal use, you can only claim 50% of the car’s GST, not the full amount.
5. Not keeping a log book
If you drive more than 5,000km each year for work, you need to keep a log book. It must contain the odometer readings at the start and end of each business-related journey, along with the reason for each trip. Without it, you won’t be able to claim the percentage of the vehicle’s expenses apportioned to business use, such as running costs and depreciation. Thankfully, QuickBooks app now has mileage tracking features to help with your calculations.
6. Confusing home office expenses
To claim home office expenses, you need to have a dedicated office space in your home that’s set aside for business use only. You can get into trouble if you try to claim deductions for things needed to operate a home office where a home office doesn’t officially exist. If you genuinely work from home, make sure you get advice on which expenses you can claim – mortgage, electricity, heating, furniture, etc. – and the portion for each.
7. Skimping on expert advice
While it can be tempting to save the accountant’s fee and try to do it all yourself, appointing a qualified professional could end up saving you far more in the long run. Another set of eyes on your books will help to filter out mistakes, and they might have a few tricks up their sleeve when it comes to important deductions and exemptions. Tax time doesn’t have to be stressful. Sometimes, knowing what not to do can help set you on the right path for a straightforward, stress-free end of financial year.
For more tips and advice on how to prepare for tax time, check out these resources.