Sole Trader Tax Tips For The New Financial Year

Friday, 1 Sep 2023

a professional is working on tax calculation

A sole trader is a passionate individual who likes to fly solo. These entrepreneurs set up a small business that is managed by just one person. They are the owner-operators who singlehandedly run their ventures and are legally responsible for the debts and losses incurred by the entity. Launching this type of business in Melbourne is quite simple, and it is also easy to operate. 

The business owner has complete autonomy as the sole trader and can start the venture by registering for TFN, ABN, GST and other required licences and permits. They can use their TFNs to file the income tax return. Here are a few tips on how a sole trader can manage taxes in the new financial year. Preparing and planning for the tax season is vital to avoid stress and confusion later. 

1. Understand the Tax Obligations of Sole Traders

If you are filing taxes for the first time in Melbourne, you must hire a professional bookkeeper to take charge of the process. Still, many wish to complete the task on their own. If you want to do it on your own, you must know about the tax obligations of a sole trader. These include lodging the business activity statement if you are registered for GST or have employees.

Sole traders can employ workers, but it makes them responsible for employee payroll tax, PAYG and superannuation of eligible workers. These entrepreneurs have to pay income tax on the money earned through the business. It is calculated at individual tax rates by bookkeepers Melbourne. They also have to make arrangements for their own superannuation and can claim deductions on these contributions.     

2. Keep A Separate Business Bank Account

Sole traders can use their bank accounts for business transactions. However, Melbourne bookkeepers suggest separating both accounts for correct tax calculations and claiming deductions. They must remember that their liability is unlimited, and all their assets are at risk. Thus, they must get business insurance to safeguard their venture from financial losses detrimental to the owner-operator.

3. Calculate Income Tax Using Projections

The bookkeepers are aware of the individual tax rate for the new financial year (2023-24) and can help calculate the taxes correctly. The sole trader has to pay the income tax, GST, Medicare (2% Medicare Levy) and student loan (if there is an outstanding training debt). Entrepreneurs can use their past year’s income to calculate the taxes for the current financial year. The projected income can be changed according to the deviations that take place.

If the business earns over $75,000, it must be registered for GST. They must charge 10% extra from their customers when selling goods and services. Also, they can claim GST back for business expenses. They can also claim a tax deduction for superannuation.

4. Keep Accurate Financial Records

Sole traders must outsource the task of recordkeeping to a reputed bookkeeping company in Melbourne. The professionals keep the books in order with the help of accounting software that maintains optimum accuracy. These records get updated in real-time and provide a clear picture of the business financials at anytime from anywhere. They must be maintained for the past five years to be presented to the ATO if needed.

They prepare financial statements and provide insight into the financial stability of the business. Keeping digital copies of the bills is vital to claim deductions for business expenses. The ATO may require these records to evaluate the accuracy of the claims.

5. Know the Applicable Tax Deductions

If the sole trader does not hire an expert bookkeeper in Melbourne, he must know about the business expenses that can be deducted. These include business vehicle cost and maintenance, equipment maintenance expenses, personal super contributions, depreciation of furniture, etc.

Many self-employed individuals have a home-based office. They can claim work-from-home business deductions, such as internet and phone bills used for business, rent, mortgage, equipment, furniture, electricity, etc.

Other common business costs include business loans, software subscriptions, legal fees, marketing expenses, repair of machines and computers, etc. Entrepreneurs can claim the part of these expenses that have been utilised for work and must have the receipts to prove them.

6. Prepare for the Tax Season

Tax planning is highly recommended by Melbourne bookkeepers because it helps to keep the paperwork in order and save money for paying the tax bills on time. Besides calculating the taxes and deductions, sole traders must pay PAYG Instalments every quarter.

They also need to file the BAS every quarter and mention the GST in their invoices. They can perform these activities effectively with the help of a seasoned bookkeeper who uses the latest digital tools to manage the tasks.

Wrapping Up

A sole trader has many responsibilities because he has to manage the business independently. They must ensure they do not neglect their tax responsibilities, which can become challenging if incorrectly calculated or paid late. Use the tips above to stay on top of the tax planning activity.                        

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