How do I minimise my work and cost, and get the best outcome? 

Advice for Sole Traders and Contractors

 

Use a business bank account

One of the most helpful things you can do is to keep your business and personal banking separate by having a business bank account. Use the right card when paying for business and personal items. Bank all cheques and cash takings promptly.

At the end of the year, your business and personal expenses will need to be separated so your correct deductions can be calculated. Keep your claimable receipts and invoices in a file with your monthly statements. You probably won’t remember if that newsagent charge was for birthday cards or office supplies, and your bookkeeper and accountant aren’t going to know either.

If you can reconcile your bank account balances to your recorded business income and expenses each month, quarter or year, then you can more easily prove that your records are complete and accurate.

By law you must keep good business records. Correcting mistakes can cost you significantly more in time, accounting fees, and Tax Office penalties. One way to test the integrity of your record keeping system is regular bank reconciliation:

Basic examples:

  • Opening balance on 1/07/11 plus total business income deposits minus total business purchases, plus/minus other described transactions, equals closing balance on 30/06/12.
  • Record the balance on the bank statement, list outstanding deposits, list outstanding cheques, calculate closing cash book balance. If you keep a running cash book balance, these figures will agree.

It’ll take you a great deal more time to record and reconcile all the personal transactions. That extra time may cost you more in the long run than the extra monthly bank fees you pay for having a second bank account. Time is money…so make less bookwork for yourself!

More information:

ATO Publication – Record Keeping for Small Business – Bank Reconciliation Statement

 


 

Download (export) your bank transactions to Excel and CSV at the end of each quarter (30 Sep, 31 Dec, 31 Mar, 30 June)

Many of our self-employed clients are using BankLink and MYOB. Some are subscribing to cloud accounting packages. Others are happily preparing cash books in Excel and good old paper ledgers.

If you’re not already keeping your books up to date, how do you plan to prepare your 2012-13 records for tax time? With a little forethought and preparation NOW, you’ll not dread dealing with it.

Do you use online banking? Whether you use Excel for your BAS worksheets, may start using accounting software, or plan to tackle it all after the end of the year, this simple habit can potentially save lots of time.    Most financial institutions only allow you to view the last 100 days of transaction history so you should set yourself a reminder to export data files from your online banking every quarter, and save a backup.

 

Why do we suggest doing this?

  • It’s a simple contingency plan.

  • If you decide to sign up for our BankLink service part way through the year it’s not too late for us to start automatically streaming your bank statement data into our software. We can import a CSV file of your historical transactions into BankLink and code the income and expenses in the same way as streamed data. We’ll save time - and you’ll save money on accounting fees - if we don’t have to manually enter all the transactions that happened before the bank feeds were set up.

  • If you prepare cash books in Excel then why spend hours of time on manual data entry when you can save the actual business bank statements in Excel? Have column headings for Date, Statement Text, Withdrawals and Deposits. Then insert a few extra column headings for Description, Payer/Payee, GST Included (if registered) and Private Usage %. You’ll only need to type data under these extra headings, and your basic cash bookkeeping will be done!

  • If you think you may end up using MYOB, Xero, Saasu or QuickBooks it may be necessary to import past transactions. You need to export the data from your bank account in a file format that can be taken into those programs, such as QIF, OFX, CSV or QBO. Contact us for help choosing the right software for your needs and budget.

  • It’s always good to have a backup. If one method fails (technology can be tricky) or you end up not liking your new accounting software you can always fall back on those saved Excel or CSV files to cost-effectively, accurately and efficiently construct your records in Excel or other software.

  • Saving an Excel spread sheet of all your transactions provides details you can use later to prepare all types of spread sheets for business cash flow analysis, work deductions, checking salary payments, investments or personal budgeting. A little copy/paste, data-sorting and auto sum in Excel can go a long way to keep you informed about your finances.

 


 

 

Frequently asked questions:

“Do I still need to keep all my receipts and invoices if I record them with bank transactions?”

Yes. Under Tax Law you may need to keep the original documents for up to seven years. We suggest that you check and safely file away every invoice and receipt as you write the details against your bank transactions. If a document is missing please write “NO INVOICE” in the description line so that we can identify these transactions and advise you. The Tax Office can penalise you for claiming a deduction which you cannot substantiate.

 

“How do I export the transactions once I’ve logged into my online banking?”

Most financial institutions enable their online customers to export account transactions for use in various software applications and to CSV and QIF file formats. Follow the instructions on your bank’s website - select the account, select a file format and date range, and save the file to the desired location.

 

“Should I bother doing this if I don’t even carry on a business?”

Yes, definitely. Your bank statements are a great way to track all your outgoings. This is especially true if:

  • You have an investment property and want to record the rental income and expenses from banking and loan statements.
  • You pay electronically for many work related expenses throughout the year and want to maintain a list in Excel to keep track of your deductions and not forget any at tax time.
  • You travel overseas for business and use a credit card for hotels, transport and meals. The foreign currency amounts will be converted to AUD on your statements.
  • You want to track other non-deductible and domestic expenses for personal and household budgeting purposes.

 

“What if I am not very confident using Excel?”

That shouldn’t stop you from downloading and saving your bank statements. That part is easy, and it may be all you need to do. You can look at an Excel spread sheet as a simple piece of paper with grid lines printed on it, much like a paper cash book ledger, with column headings and separate fields (called cells in Excel) for typing words and numbers. The golden rule with Excel is to always keep the words and numbers in separate cells so that, when necessary, we can automatically sort your data by words A-Z and calculate the numbers. If you’d like to watch some free tutorials for Excel beginners, we recommend The Smart Method:

http://www.learnmicrosoftexcel.com/free_tutorials/free_tutorials_with_video.htm

 


 

 

Present your accountant with proper records they can work with

When it’s time to lodge your return, you should bring your records in a form which is easy to review and check. If you present with a a Cash Receipts and Payments Book or conventional accounting reports such as Trial Balance, Profit and Loss Statement, Balance Sheet and Bank Reconciliation Statement then your accountant is more likely to rely on your records and get straight to work.

You can discuss this with us or your bookkeeper if you need assistance.

For most contractors our free Excel cashbook templates work very well, as they allow totals to be easily checked and expenses to be categorised. You can use them to record all cash and bank transactions in chronological order. We use data-sort and auto-sum functions in Excel for quick and accurate totals. For those who would rather spend a little money to save time, our BankLink service is fantastic for automatic recording of your bank transactions into accounting software throughout the year.

If you rock up with a pile of papers which need to be sorted through, it’s going to take a lot longer and cost a lot more to get your return prepared. If you do the opposite and just bring some totals written down then we may have to ask you to show how you arrived at those totals. This is especially true if you have high expenses, more expenses than income, or no workings and receipts to support your totals. As a registered tax agent, we must take reasonable care in ascertaining your state of affairs before making a statement on your behalf. That means we need to see how you prepared your records.

 

How do my BAS’s and tax return relate?

If you are GST registered, the income and expense amounts in your tax return are net of GST. Be aware that if the figures in your tax return don't reconcile with your BAS’s - or indicate under-declared income or GST - it could raise a red flag to the ATO. So if you do your own BAS’s you should carefully check your annual totals against your BAS summaries before seeing us for your tax return. Tell us if you think there may be a discrepancy and ask us for help with a BAS revision if necessary.

 

Record every expense you think is allowable and be prepared to discuss it

We can only include deductions we know about. Record and clearly describe everything that is deductible to the best of your knowledge and let us exclude what you can’t claim. Highlight any expenses you’re not sure of. If you don’t ask, and we don’t know, then it’s not going to happen. By the same token, not all expenses can be claimed. Sometimes we need to be able to frame an argument, or apportion between your private and business usage. This is one way our expertise can help you greatly.

Whether you can claim a deduction rests on the general principle of how a specific matter of law is applied to your individual circumstances. It depends on what you do to earn income and how that expense relates to it. Tax law is not always fair, logical or intuitive. But your accountant should enjoy explaining to you how to get the best result legally possible!

More information:

Section 8-1 of the Income Tax Assessment Act 1997 – General Deductions


Try to manage your affairs throughout the year

You are more likely to have accurate records if you maintain them as you incur costs and earn income over the course of the year. If that becomes hard to manage, it may be time to start working with a bookkeeper. We can introduce you to a suitably qualified bookkeeper/BAS agent or offer our services.

 

 


 

Ask for advice before you make big decisions

 

Much of the time, small business decisions are made directly from immediate or pressing commercial needs. That said, there are often decisions your accountant can help with from a tax planning perspective which can result in big savings down the track. If you are contemplating major changes, it’s good to communicate a short email to see if your accountant is aware of any considerations you could factor in to your decisions.

If someone else gives you tax advice – a friend, parent, a guy at the pub, an employer, financial adviser, salesperson, or even an ATO worker – perhaps get a second opinion from your accountant before you act.

Tax advice is a bit like medical advice – in that anyone can give you their opinion – so consider the source.

 

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