As we navigate through the economic impacts of the COVID-19 pandemic, many Australians have opted for a change in their work dynamic, starting their own businesses in an attempt to increase their income or to break free from the monotonous employment cycle. However, embarking on this journey can bring potential tax implications, which many tend to overlook.
Q: Can you share some top tips and advice on the tax opportunities and implications of running a small business?
A: One crucial aspect business owners need to understand is the need to declare your income. Regardless of whether your venture is small or large, the income generated is taxable and must be declared on your tax return.
Remember to claim deductions for any expenses incurred as part of running your business. This includes the fee or commission taken from the price you charge your customer for your services, as well as relevant home-office expenses.
Transitioning from being an employee to running a business implies that you are now responsible for setting aside money for future tax bills. This is one of the most common pitfalls new businesses tend to fall into.
In case your business turnover exceeds $75,000, you might need to register for GST. Also, remember to lodge a Business Activity Statement (BAS) with the ATO at least quarterly.
Running your own business indeed comes with extra tax obligations, but it also provides certain tax perks, such as access to all the tax concessions available to small businesses, including full-expensing of capital assets until 30 June 2023.
To avoid any stress related to taxation, hiring an accountant is highly recommended. An experienced agent will ensure that your tax returns are accurate and complete, and they will be able to identify obscure tax deductions that you may not be aware of. Plus, the fee for a tax agent is also tax deductible!
Q: As someone who is just starting their own business, what are the key things they need to know about bookkeeping? Can you provide some basic advice or tips?
A: Creating a business plan is essential. It helps establish your goals and objectives and gives an overview of your business structure, industry, target market, and marketing plans.
Keeping accurate business records aids in decision-making and ensures tax compliance. If you decide to handle bookkeeping yourself, consider using accounting software. Alternatively, you could outsource it to a specialist bookkeeper.
One of the main reasons for businesses failing is not because of lack of profit, but inadequate cash flow. Having robust mechanisms to monitor and manage your cash flow is crucial to the success of your business.
Q: What are some essential tax tips that individuals should keep in mind when starting a side hustle?
A: As mentioned earlier, declaring your income is imperative, even if you consider your side hustle as just a hobby. Also, you are entitled to claim deductions for any expenses incurred in the running of your business.
Q: Many people are running businesses from home these days. What are some commonly overlooked tax deductions that they should be aware of?
A: If you run your business from home, you can claim deductions for relevant home-office expenses, including a proportion of your internet fees, phone bills, and costs of office furniture.
Q: Could you provide a tax guide for those who are considering starting and running a home business, covering the important tax aspects they need to be aware of?
A: Running a home-based business implies that you may be eligible to claim tax deductions for occupancy expenses such as mortgage interest or rent, council rates, land taxes, house insurance premiums, running expenses, and the cost of business-related motor vehicle trips. However, to claim these expenses, the area used for business in your home must have the character of a place of business.
If you’re operating a home-based business, you can claim a percentage of all these costs. However, when you sell your home, you might have to pay capital gains tax (CGT) on the portion of your home used for income generation. So, before you start deducting a portion of your occupation costs, be aware of this potential snag.
This content does not constitute financial advice. We do not know your personal circumstances. Do your own research and make your own decisions when it comes to managing your money and engaging services.