If you have an ABN, you need to lodge your tax return that shows the business income you earned throughout the financial year.
This means that you need to keep very detailed records of every time you made a sale (sent an invoice that was paid to you) and every time you made a purchase relevant to your business (incurred an expense that is tax deductible).
Hopefully, you have all your invoices and a list of which ones are paid and a receipt for every purchase!
However, what usually happens when a Sole Trader experiences success in business, is that they find themselves spending most of their time talking to and helping their customers. The easiest way to make sure your customers pay your invoices on time is by making sure your customers are happy, and by doing what you love - running your business.
If this is the case for you, we recommend making next tax time simpler by signing up to accountedfor. When you sign up for accountedfor, you get tools to automatically send and track inovoices, and a business expense card to automatically track your business (tax deductible) purchases!
That way, next year at this point - you're already done, an accountedfor accountant will simply use the data collected throughout the financial year to automatically calculate and pay your taxes for you!
Lodging your Sole Trader Tax Return
If you're not already signed up to accountedfor, however you will need to calculate your business income and your tax deductible expenses.
Business Income
The way you calculate your business income is to:
- Prepare a list of invoices
- Work out which invoices are paid or not paid
- Reconcile (match) each invoice payment (including part payments!) with your bank statement to confirm
- Add the invoice amounts together, excluding invoices for which you don't expect to be paid, and;
- Note down the total business income from 1 July to 30 June.
This is the amount that your business made during the financial year, and forms part of what is called you assessable income.
If you have earned income outside of your business during the financial year, such as if you were an employee or had another job, you will need to also find your pay slips or salary. This is called your employment income.
Your assessable income is your business income plus your employment income, and this is the amount you will be taxed on.
Tax Deductible Expenses
Once you have determined your assessable income, you will need to calculate the amount you have spent during the year to make your business income.
The way to calculate your deductible expenses is to:
- Prepare a list of bills or receipts (or invoices received from other businesses)
- Determine how much of each purchase you made throughout the year relates to your business or helped you earn your business income
- Reconcile (match) each purchase (or part payment) with your bank statement to confirm
- Add the amounts together
- Note down your total business expenses from 1 July to 30 June.
This is your total deductible expenses throughout the year, and is what will reduce your assessable income, meaning reduce the amount on which you will pay tax.
However! There is a considerable art, skill and process that goes into working out which purchases (and how much) each purchase relates to your business income.
Some purchases will be easy to determine: such as if you are selling jewellery, purchases of gold and silver will be one hundred percent deductible.
Others not so much: how do you determine how much fuel you used to earn your business income throughout they year? If you don't know that off the top of your head, you might need a refresher on tax deductions!
To help you calculate your tax deductions, we have a handy way to help using accountedfor. See How to work out if it's a business expense (tax deductible) or for my personal card? 🤔 for more information.
Putting it all together
Once you have your assessable income, and your tax deductions you need to fill out your tax return form. You can do this on the Australian Tax Office's website or request a copy of the paper form.
Be sure to correctly answer all questions with your pre-prepared information so you end up paying the right amount of tax.
Once you have filled out your tax return all you have to do is sign and lodge it! If you have done everything correctly up to this point, you could be due a tax refund!
If not, however you will need to pay the amount of tax you owe at this stage.
The tax office can take weeks to assess your tax return.
Once they have assessed your tax return, they will pay your tax refund into your bank account electronically.
If this seems overly complicated...
That's because it is!
As tax and the system that governments tax their citizens has been around since at least Ancient Egypt (3000–2800 BC), and computers have only existed relatively recently, the way we calculate and pay taxes is way out of date.
If you'd like to avoid this laborious manual task that takes you away from your business and your customers, and lets you focus on starting, running or growing your business talk to us today.
With Sole Trader plans that start from $29/month you can let an accountedfor accountant fight the tax office for you to get the best refund possible, while empowering you to run your business with modern, digital tools to cut through the administrative costs that your competitors face.
You can also register for accountedfor for free, to test it out and only begin paying once you're comfortable that it's right for your business!
