To help prepare you for future lodgements we have put together a few helpful hints to simplify tax time:
1. Ensure you’re managing your cash flow
Managing your cash flow is a crucial part of preparing for tax time as a sole trader. Tax as a sole trader is very different to being an employee as you do not have tax taken out each time you receive income, so you should consider putting some cash away for tax purposes.
The tax you pay at the end of the year ultimately depends on how much you earn, so it is important that you calculate how much income tax you expect to pay at the end of the financial year.
If you have been a sole trader for a few years, then you may be paying PAYG installments quarterly this can help contribute towards your taxes at the end of each year. You can vary the installments depending on how much work you do each quarter. If you are unsure about PAYG installments you can read more about them here.
2. Keeping a logbook of your expenses
Another crucial part of preparing for tax time is to keep an accurate record of your expenses. Primarily you should ensure that you have kept a summary of all the expenses you earnt throughout the financial year, and update this as regularly as you wish. It is also important to keep receipts of these expenses in the event of an ATO audit
Secondly, if you are choosing to utilise the logbook method when claiming expenses you must also ensure you have a business use percentage. This percentage reflects the balance between work and personal life and is utilised to claim deductions at tax time.
If you are unsure on how to calculate this percentage the Airtax logbook is a great way to start.
If you have any further questions about anything discussed here please feel free to reach out to the Airtax team at email@example.com.