How sole traders should be preparing for the EOFY tax season

The ATO’s latest crackdowns ahead of the end of financial year tax season are targeting work-from-home expenses, capital gains tax and property investors. For sole traders working remotely or juggling multiple sources of income, tax time can already be a stressful period, without this added pressure from the ATO, writes Nicole Kelly, Founder of TaxTank.

On the one hand, there are regular warnings from the ATO about the ramifications of making errors in tax returns and the system can be complex to navigate. On the other hand, most people are just trying to do the right thing, stay compliant, and get the best returns legally possible.

As you’re planning ahead for the EOFY period, here are some things to keep in mind to ensure you are submitting accurate tax returns while also optimising your outcomes.

Non-commercial losses

If your side hustle is not immediately profitable and you incur losses, you may be able to offset those losses against other income. It is important for Aussie sole traders to understand non-commercial losses and how they can be used to potentially help reduce any tax liability.

By properly understanding and applying the rules that govern non-commercial losses, sole traders can know if losses can be used in the current year or if they must be rolled forward to reduce future years’ profit. Either way, this knowledge is vital to effectively reduce taxable income now and plan into the future.

It is also important to maintain proper records and demonstrate that you are genuinely carrying on a business with the intention to make a profit. Keeping records of income and expenses, maintaining a basic business plan, and documenting your efforts to generate income from your side hustle will ensure it’s not considered to be an excluded hobby.

Self-education expenses

Sole traders can claim deductions for expenses related to self-education or professional development that directly relate to their current business activities. This can include courses, workshops, seminars, and conferences that enhance your skills or knowledge in your field of business.

Motor vehicle expenses

If you use your vehicle for your side hustle, you can claim deductions for motor vehicle expenses. Keep a logbook for a minimum of 12 weeks that records your business-related trips, including dates, distances travelled, the purpose of each trip, and odometer readings. Additionally, retain receipts for fuel, maintenance, repairs, insurance and registration fees.

If you use your vehicle for work and business, ensure you track them separately so the claims can be accurately calculated and reported into the relevant sections of your tax return.

Business-related travel expenses

If you incur travel expenses for your side hustle, such as attending client meetings or conferences, you can claim deductions for these expenses. Keep records of your travel itinerary, receipts for accommodation, meals and transportation, and evidence that the travel was necessary for your business.

If you extend your trip for some personal R&R, make sure you apportion accommodation and expenses for these days, noting travel to and from your destination is still deductible in full.

Gain visibility of your tax position year-round

For many people, maintaining records and tracking expenses means storing receipts in a shoebox or keeping them in an online folder. But by the EOFY period, everything is a mess, with many receipts missing or forgotten about. Keep in mind that digital tools and solutions are now available, designed specifically for sole traders, to help make this simple act of receipt management much easier so you can claim everything you are entitled to.

Similarly, these kinds of tools come with automated ways of tracking and applying relevant losses to tax returns, making real-time tax calculations and projections and reporting that can help ensure sole traders are keeping track of what can and cannot be claimed.

Most sole traders are in the habit of discussing their taxes annually, or perhaps quarterly, with their accountant. Rather than knowing their options and tax obligations ahead of these meetings, most are just hoping for the best. But with the right tax management software – that also should not be costing more than a cup of coffee a fortnight – sole traders can in fact understand their tax and financial positions, including all other income from work, property and other investments, throughout the year – so there are no surprises come June 30.

Plus, they have information at their fingertips that could help them make savvier financial choices as needed.

Following the ATO’s rules is hard enough, and as sole traders come under even more scrutiny this year, if you are still doing your taxes the way you have been doing them for the last ten years, you are overdue for an updated approach.

Join the soloist movement. Whether you are new to Flying Solo or looking to grow your business, our membership options will help you attract more leads, grow your network and sharpen your business skills.  Sign up to our newsletter to get the latest news and advice straight to your inbox.

Now read this:

//corestage-cdn.flyingsolo.com.au/startup/financial-management/how-to-make-eofy-a-less-taxing-time-for-your-small-business/