May 27, 2018
5 mistakes to avoid at tax time
#1 – Mixing personal expenses with business
This a huge burden on businesses at tax time. The amount of time that is spent separating personal and business expenses is phenomenal. To relieve this pain, ensure you have separate accounts and credit cards for business and personal expenditure. Use an accounting software that utilises bank feeds to automatically import your business transactions, snap and store any receipts that you’ll need later, making it easier for you and your accountant at tax time.
#2 – Missing out on tax deductions
To be able to claim a deduction, you need proof, i.e. a receipt or invoice. There is a common misconception that you can claim a deduction for expenses without a receipt under a certain amount. NOT TRUE, for certain expenditures, i.e. other work-related expenses, you need receipts or invoices for the total amount, if over $300 in total!
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.
Ensure you get appropriate advice on the deductions that you may be able to claim. There are deductions like home office expenses that could be claimed in the right circumstances. Talk to your accountant now about any deductions that could be claimed.
On the other hand, be careful not to over claim. The ATO has its regular yearly hitlist of deductions that they will seek to review. These include work related expenses that may not be deductible like phone bills, clothing, laundry and car expenses (see below). You have been warned!
#3 – Not keeping a logbook
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.
Another misconception is that 5,000km or less is a standard deduction, NOT TRUE! This is on the ATO hitlist of deductions under review. If you claim for 5,000kms or less, you do not need a logbook, but you need to be able to justify how you calculated the kms in your claim.
#4 – Waiting until tax time to think about tax time
For any business, tax planning should be part of your yearly ritual. Sitting down with your accountant is immensely beneficial for knowing how much tax you may have to pay but also to plan for your cash flow in the next year. Your accountant should be telling you about any new initiatives that may help or hinder your business and assist you to manage the risks and cash flow.
For an individual, developing a few simple habits can make a world of difference – like taking photos of all your receipts, or printing your bank statements at the end of each month, and highlighting any work-related expenses.
For those who are more digitally inclined, there are also several apps that can also help you track your expenses, so everything is immediately good to go come the end of the financial year.
#5 – Not using expert advice
While it can be tempting to save the accountant’s fee and try to do it all yourself, appointing a qualified accountant 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.
It also pays to get the balance right when it comes to selecting your tax professional.
Own 15 investment properties, a share portfolio that could rival an investment banker, and a series of trusts? Perhaps it might be an idea to shoot for that expensive accounting firm and hire a dedicated tax specialist with decades of experience.
Running your own small business, have a few employees and looking to optimise your cashflow? Your local small business focused accountant will be well placed to give you personalised advice to match your needs.
Over-investing can mean throwing away money needlessly, but under-investing can sometimes be even more costly in unclaimed deductions or mistakes. Choose wisely according to your personal circumstances.
General Advice Warning: Information provided on this website is general in nature only and does not constitute personal advice. The information has been prepared without taking into account your personal objectives or needs. Before acting on any information on this website, you should consider the appropriateness of the information having regard to your objectives and needs.