Home-based businesses are one of the fastest growing business sectors in Australia, and that’s a truly marvellous thing. Mumpreneurs make up a significant number of these home-based business owners. Indeed, according to the Australian Institute of Family Studies and the Australian Bureau of Statistics, mothers of young children are up to three times more likely to be self-employed than other working women.
As Aussie tax accountants, one of the main things we hear from the Mumpreneurs we work with is that they love having flexibility to work around their children and set their own hours. They also get to do something they’re passionate about, which adds to the sense of balance. For these entrepreneurial parents, it’s all about family and lifestyle.
Of course, running a small business is doubly challenging when you’re raising little humans! You’ve got so much on your plate all year round, so when it comes to tax time, you want things to run smoothly. To make this possible, we’ve broken down the six most powerful strategies Mumpreneurs can employ to make tax time and financial management easier.
6 Tips for Mastering Home-Based Business Taxes
These are tips ITP’s certified tax accountants have developed from working closely with Mumpreneur clients. Each one addresses the core issues we see coming up time and time again for home-based business owners. So, by the end of the article, you should have a clear understanding of how to effectively manage your business taxes.
1. Keep on Top of Your Records
Mums are busy – that’s a given. So it’s important to keep your book-keeping up to date. Otherwise, you run the risk of forgetting the valid tax claims you are eligible to make. By gathering, sorting and keeping up-to-date records, you will ease the tax lodgement process. An added bonus is that you will also have a strong insight into how your business is performing all year long.
If you hire staff for your business you will be required to report your salaries and wages, PAYG withholding, and superannuation information to the ATO every time you get paid from July 1st. You might consider using an accounting system such as Quickbooks, XERO or MYOB. These programs are updated with Single Touch Payroll, also called STP. This Australian Tax Office (ATO) initiative encourages real time digital salary reporting and can make life far easier for small business owners. The trick is knowing how to set yourself up correctly from the start.
Pro tax tip: ITP can get you discounted subscription rates for QuickBooks online and can help you get set up correctly from the beginning. We can take the burden off your shoulders and ensure your business is on track and conforms with the ATO’s strict requirements.
2. Always Provide Evidence for Your Claims
Super-busy Mums who run their own small business may not be aware of every tax deduction they could claim. This can see you missing deductions and paying too much tax. It could also see you claiming things you’re not entitled to and running into issues with the ATO. Either way, the outcome isn’t ideal.
The ATO allows small business to write-off all sorts of costs that arise in the course of running and growing a business. While your accountant can help you perfect the details of your yearly tax deductions, there are three golden-rules you should always keep in mind for claims:
- You must have spent the money on your business for your business (aka, it cannot be a private expense)
- You can only claim the business portion of the expense (if there was a private component to that expense, it cannot be claimed)
- You must provide a record of the expense (the ATO grows more vigilant each year in validating claims)
What it all boils down to is this: You need to provide proof if you wish to claim an expense.
3. Claiming Vehicle Expenses
Many Mums must travel for their small business. The ATO allows for a certain amount of kilometre-related business travel, meals when travelling overnight, taxis, and accommodation expenses. You may even be able to claim a percentage of vehicle maintenance, repairs and running costs. Traffic fines, however, cannot be claimed.
Don’t forget to use a log book to prove and substantiate your tax claims. If you’re audited, the ATO will want to see it. To learn the specifics of how to keep an accurate log book, visit our guide to claiming car expenses.
4. Claiming Work From Home Expenses
If you run your business from home, there are certain expenses you can claim. Depending on your circumstances, these may include:
- Mortgage interest
- Rent
- Council rates
- Land taxes
- House insurance premiums
- Running expenses (such as gas and electricity, phone, internet)
- Asset depreciation
- And lesser known deductions such as cleaning and repairs.
Once again, you can claim business-related components only. For example, you can claim electricity, but only for the hours you work in your home office, not for private use before and after hours. To make this easy, keep a consecutive 4-week diary recording the number of hours worked from home. This helps establish a pattern of use for the whole year. Create a new one each financial year to establish a claim for your electricity and internet use.
Want to learn more about claiming work from home expenses? Head over to our complete guide to claiming home office costs after you finish this article.
5. Remember to Claim Software and Computers
If you use a personal laptop or phone for business purposes, you can make claims related to their business use. Just note that things can get a little complicated here. For example, if you buy software under a licensing agreement that you use to do business, your claim will be different than software bought outright. It’s best to ask for the advice of your tax agent regarding claims made for software and technology like computers and smartphones.
6. Claimining Depreciation of Stock
If your business carries stock, tax time is the perfect time to undertake a stocktake. You may be able to claim depreciation for old and slow moving stock. Another crucial part of stocktake is to reconcile bank accounts and petty cash. Compare your debtor and creditor listings to amounts shown on the Balance Sheet to ensure they reconcile.
You’ll also need to reconcile GST, superannuation, PAYG and CGT at the end of the financial year. If you have been pre-paid for labour that you have not yet supplied, you may be able to push those costs into the next financial year to minimise your tax bill. Once again, ITP’s skilled tax accountants and bookkeepers can help yo manage these complex obligations.
Working With a Tax Agent
Your tax agent will understand how your business works and will know the deductions you can claim each tax year. Crucially, if you’re a client of ITP, you can contact your agent year-round for free advice! With so many benefits and so much on the line, it’s important that you don’t delay. As a Mumpreneur, you’re too busy to worry about tax time. Get the help you need today and get back to watching your business (and your kids) grow!