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Sole trader Tax return requirements

Sole trader Tax return requirements

When you operate your business as a sole trader, you as an individual running a business are solely responsible for managing everything – from operating business activities to company taxes. This includes charging sales tax, lodging tax returns as well as claiming tax credits. Therefore, it is very important to understand everything about taxes you are accountable for.


As a sole trader, you are legally responsible for all business activities and for paying employees’ salaries. So, you must lodge a tax return even if you have an income below the tax-free threshold. In your tax return, you need to mention:


  • Your business income, even if it is less than the business deductions you can claim
  • Other incomes, such as salaries, wages, dividends, rental income, and others


There is no need to work on the amount of tax you are accountable to pay. If you have paid PAYG instalments during the financial year, this amount will automatically get credited to you in your assessment.


Understanding sole trader tax obligations


If you are a sole trader, you are required to pay taxes just like other business owners with Sole Trader Tax Accountant. The rate of tax you have to pay is the same as a personal income tax return. Now, what amount you have to pay depends completely on how much you earn every year. This amount is worked out by ATO (Australian Taxation Office).


No matter how much amount you earn as a sole trader, you must have TFN (Tax File Number) and ABN (Australian Business Number). Also, you need to submit a yearly income tax return. Suppose you are a sole trader who earns $75,000 or more income every year. In that case, you must also register for GST (Goods and Services Tax) and also need to submit BAS (Business Activity Statement) – monthly or quarterly, whatever is convenient with the help of Sole Trader Accountant.


Sole trader tax return is a tax return that every sole trader in Australia has to pay. This type of tax is managed on an individual Sole Trader Tax Return accountant, where your business’s income is entered as an individual income.


The businesses above a certain threshold have to pay different taxes, as this accountant for sole trader is not uniform. Here, in the type of taxation, GST comes in.


GST (Goods and Services Tax)


If you earn more than $75,000 in a year, you require registering for the previously mentioned GST. This step will bring a great impact on your taxes. It is so because your sales may be qualified for taxation if your business falls under the GST category. It is recommended to maintain tax invoices for your sales so that you can consider GST credits and it will help in your tax return as well.


GST credits are the amount of GST, while the remaining amount of the purchase is claimed as a tax-deductible purchase only if this is made for work purpose. This, in turn, helps your business to get the highest possible tax return. But, keep in mind that this concept requires in-depth bookkeeping.


Now, here BAS comes into action. These statements should include a summarisation of your business activities for the period when every business purchase and sale is made. If you earn less than $75,000, then you will not need to consider yourself under the GST category.


Tips for sole proprietorships taxes


There can be tremendous stress when it comes to filing taxes. But, you must not need to be under pressure as you have worked hard for your business, and with the proper knowledge, you can easily get the best return possible. These tips can help you make everything easier and stress-free.


Assess for PSI

If you are mainly paid for your skills, expertise, or personal efforts, you can receive PSI (Personal Services Income). Whether you are a copywriter, legal advisor, or consultant, or doing a similar business, you are more likely to receive this type of income.


Some of your income may be PSI, while some are not. To figure out this, you require checking each job or contract. If the service you have provided is more than 50% as per your efforts, skills, or expertise, it comes under PSI.


Suppose you are running a business that sells products made by another individual or people; your income is not considered as PSI. But, if you are hired by a company where your products are made and sold, then it can be technically a PSI as it uses your skills, efforts, and expertise to make the product.


Never miss deductions

As a sole trader, you have the right to claim some types of business tax deductions for most of the expenses you have incurred running your business. But, they must be directly associated with your assessable income. These deductions can save thousands of dollars every year, especially when your business will grow to the next tax bracket.


Some of these deductions include business travel expenses, vehicle expenses, servicing or maintenance expenses of machinery, tools or premises, home office expenses, personal super contributions, bad debts or invoices that will not be paid, etc. It also includes other expenses, such as stationery, advertising, work uniforms, linked courses, etc.


Be a dedicated record keeper

If you want to make things simpler and easier for you, it is very important to keep detailed financial records all through the year. Make sure to keep records of sales, purchase, bank statements, expenses, and payments to employees or contractors.


For tax return, you have to show details of debtors, creditors, and current inventory. Also, make sure not to forget to mention purchases or sales as everything should be properly accounted for. You can either use a spreadsheet or accounting software to record each detail in a professional way.


Understand the basics

You have various ways to prepare and lodge your tax return. You can either choose to go for it online or via a registered tax agent or by filing the tax return form and then mail it. If the PSI rule applies to you, you have to fill in a separate form for the sole trader.


You may don’t know much about doing your taxes, but as it is a legal requirement, you must understand its basics to get through the essential steps and maximise your return.


Running a one-person business is not a walk in the park. You have to be aware of all the necessary concepts that can help your business grow. In the case of taxes, you can take the help of a professional to get the right guidance and get a stress-free tax session.

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