Having worked with businesses and individuals to get their tax returns in order for over the last three decades, I’ve come across many common mistakes. These mistakes can often cost individuals thousands in lost tax rebates, and businesses tens of thousands.
Worse still, the ATO issues roughly $2.1 million in fines each year, causing even more pain for businesses, freelancers and individuals who do not complete their returns correctly. So if you’re looking for affordable Tax Returns in Cairns, don’t risk doing it alone. Using a qualified Cairns accountant will help avoid fines and prevent you from falling for these common pitfalls.
Avoid poor record keeping
If you are a business, freelancer, or tradie, record keeping generally requires having some form of bookkeeping software that enables you to track revenue and expenses. MYOB, Quickbooks and Xero to name a few, are perfect examples of accounting systems that not only help you keep on top of expenses, but the health of your business.
Spreadsheets and bank statements really do not cut it when you’re a business, but even as a sole trader, you will need a more sophisticated system.
You will also need to have all receipts for expenses you have incurred. Again, this can be a laborious task, particularly if this comes as a surprise to you. However, there are tools out there that digitise receipts and make reconciling so much easier – Hubdoc and Receipt Bank for example.
Understand the difference between personal and business expenses
It’s a common misconception that everything becomes tax-deductible once you set up your ABN. Unfortunately, as your accountant, it’s usually down to me or my team to squash that dream of tax-deductable holidays or shopping sprees. As you can imagine, this can be quite a shock for some people.
Another error I see frequently is when sole traders do not separate their business and personal bank accounts. Using one account for every business and personal transaction makes everyone’s life harder. Particularly when it comes to ensuring your tax return is 100% accurate.
Understand what can and cannot be claimed
The ATO may not be willing to stump up the bill for your gym membership or for those client lunches. However, what can and cannot be claimed depends on your profession and circumstances, so it can vary wildly.
Gym memberships could be tax deductible if your job requires you to have a high level of fitness. Similarly, lunch receipts can be included if you are traveling or working away. As your accountant, it is down to me to understand the nuances and ensure you claim for everything you are able to, but also advise what is not permitted.
More information about what can and cannot be claimed can also be found on the ATO’s website.
Forgetting about write-offs
On the other side of the fence, we have businesses, or sole traders that do not claim for deductions for the costs their incur for running their business. Insurances, registrations or certifications you need in order to operate or fulfil your role are absolutely deductible.
While there are people who are happy to claim every single cost, whether it’s relevant or not, there are also people who are more frivolous or cautious. It’s my role as your tax accountant to provide you with the right information, and also the confidence to know that you are perfectly entitled to claim for the items we include in your tax return.
In some cases businesses may be eligible for instant asset write-offs, further reducing their tax bill. With each federal budget comes a different set of eligible assets and rules, so keeping on top of these is essential. For the 2023 / 2024 financial year, you may be able to claim up to $20,000 for assets that are installed and ready to use that year.
If you want to discuss your circumstances or your business’ tax returns in more detail, please get in touch.
Missing tax payments
Missing an ATO payment sometimes happens, however, when there is a significant tax debt outstanding that can make it harder for your business to obtain a bank loan or credit extension.
In the past, ATO tax debt did not affect your credit rating. Since July 1 2017, the ATO has informed credit rating agencies about businesses that have not engaged with it about their tax debts.
So, if your missed payment is simply a short-term case of forgetfulness, there’s rarely a case to be alarmed particularly if you pay in full within a prompt timeframe. However, if it looks like cashflow may be preventing you from fulfilling your tax obligations, organising a payment plan with the ATO is the next best step.
A payment plan can be organised through MyGov or the ATO’s telephone service. Individuals, sole traders and businesses can break down their payments into smaller chunks over a fixed period of time. This allows you to keep up with your tax payments while recovering any cashflow issues.
For more information about the ATO’s payment plans, visit their website.
If you are looking for a tax accountant in Cairns you can rely on to ensure you meet your tax obligations and get the best return, please get in touch.