Avoid common mistakes at tax time
To help you out this tax season, we’ve compiled the most common mistakes and some ways you can address them to reduce stress and maybe even save some money.
Many small businesses start out using spreadsheets for bookkeeping, particularly when there aren’t that many numbers to track. Most already have Excel (Windows), Numbers (OS) or Sheets (Google), making spreadsheets a low-cost, familiar and easy-to-use solution.
But a manually updated spreadsheet doesn’t scale when business grows. No matter how good you are with Excel formulas and sorting data, a spreadsheet is reliant on manual input and maintenance. As the number of transactions and other line items multiply, managing all your finances in a spreadsheet rapidly becomes arduous and prone to mistakes.
The other problem with spreadsheets for bookkeeping is that you need a separate storage space for your receipts and line items don’t automatically connect, which can add time when you need to hunt things down for double checking.
Solution? Choose accounting software that can automate much of your bookkeeping and other accounting workflows by integrating with your other tools and services. For example, your PayPal account can sync directly with your Xero, Intuit QuickBooks Online or Sage account, keeping them updated in real time and removing the potential for mistakes.
If your existing systems don’t integrate directly with PayPal, it takes only a few minutes to export your payment data from your account and upload the file into your accounting software.
“I’ll update the logbook/spreadsheet/accounts when I’m not so busy.”
Give yourself permission to skip a task once or twice and it becomes easier to skip it again and again. It’s easy for these admin tasks to slip down the priority list when the next BAS statement or tax return isn’t due for a while.
But bookkeeping can quickly snowball into a lost weekend of frantic activity when the lodgement deadline looms. Rushed bookkeeping increases the chances of mistakes creeping in and, if you discover an important tax invoice or document is missing, you might not have time to find it or seek a replacement.
What’s worse? Some records can be virtually impossible to update retrospectively. The weekend before lodgement is the wrong time to find that 12-week driving logbook sitting untouched in your glovebox. Without a complete record of each journey, including times and kilometre readings, you may be unable to claim many of your car expenses.
Solution? Good recordkeeping is based in habit. Always take that extra minute or two to update your records when the event happens. And look for ATO-compliant apps that can help you update your records more easily, like Driversnote or LogbookMe.
And if you do your own bookkeeping, schedule a recurring task in your diary each week (or even each evening) to get it done while there’s not much to do, your memory is fresh and receipts are handy.
When you purchase new trading stock (inventory), the expense is offset by the value of the stock while it sits on the shelf. That means the stock has no impact on your taxable income until it’s sold. However, lost, damaged, discontinued or obsolete stock loses its ability to sell at a value that covers its initial expense. If you have stock that’s worth less at the end of the financial year than it initially cost, you can downgrade the value and write off the difference as a deduction.
Solution? There are many ways to revalue stock but you can’t simply decide something is worth less to gain a deduction. You’ll need relevant documentation to demonstrate any actions you may have taken, such as discounting, and to justify the reduced value. Talk to your accountant about what may be an appropriate valuation strategy for your business and what documents you’ll need.
Your annual meeting with your accountant to lodge your return is not the best time to learn there have been changes to tax law that impact your business. Instead of taking advantages of changes in this return, you won’t see any benefit until the following tax year.
While missing out on a potential benefit is inconvenient, there can also be more serious repercussions for not staying up to date with tax law. Failing to comply with a change to payroll tax, for example, could see you incur a penalty or unexpected bill for the shortfall.
Solution? If you’re ever unsure of your requirements, the best place to start is the ATO website which is home to many helpful articles and videos. Many accountancy firms also offer an email newsletter to keep you across relevant changes and advice. However, you still need to talk to your accountant for advice specific to your situation. You should treat lodgement as the end of the advisory process with your accountant, not the beginning.
Stay in control of your tax
You don’t need to relish bookkeeping or enjoy decoding the intricacies of tax law, but if you set up easy, routine tasks, use the right tools and have regular check-ins with your accountant (and bookkeeper, if you have one), BAS reporting and tax time can be a lot less stressful.