The bane of any small business is its accounting practice because you probably lack the skill and expertise to handle this on your own. Moreover, you probably spend so much time on developing your core functions that it's easy to forget the non-core, but equally vital, aspects of your business until it's tax time. But good advance preparation can save you a lot of heartache in the future with the ATO. Work with trusted accountants and follow these strategies to put your small business accounting practices in place.
Separate Your Small Business Expenses From Your Individual Expenses
No matter how small your business is, collecting business income in your personal bank account will set you up for poor accounting practices through lack of proper clarity when it comes to business income and expenses, especially if you're queried by the ATO. A bank account created purely for your business will help drive financial clarity and can save you a lot of tax trouble in the future. If you have expenses that relate to both personal and business use, then you have to clearly demarcate the expenses incurred for your business. For instance, if you use your home Internet for work, then you need to establish how much was used for business and how much was used for leisure. The ATO recommends distinct business and personal expenditures for easier clarity.
Understand Your Tax Payments Based On Your Business Structure And Turnover
Your business structure and turnover will determine the type and amount of tax you have to pay to the ATO every year. For instance, if you are a sole trader, then you declare your business income as part of your personal income tax return. You will be taxed in the same way as an individual. If your business turnover crosses $75,000 per year, then you have to register for GST, which is a flat tax fee of 10 percent charged for all the goods and services you provide. You will need to work closely with your accountants to understand your tax payments based on your business structure and turnover.
Set Up An Accounting System From The Start
Many business owners wake up during tax time to set their accounting procedures in place –– only to end up paying more taxes than necessary because important documents from the year have gone missing or have not been properly stored. Work with your accountants from the start to set up a proper system for recording all your expenses and investments. For instance, if your business requires you to take clients out for meals, then make sure you hold onto the receipts because you may be able to claim tax deductions from the ATO. If you travel on business, you may be able to claim deductions for your travel expenses.
Follow these key strategies when working with your accountants to put your small business accounting practices in place.