The end of the financial year is fast approaching and for small trade and construction businesses including family-run operations, tax time can be a stressful period of juggling client queries, on-site work, staff and thousands of other time-consuming tasks.

It’s no surprise then that high numbers of independent tradies are failing to lodge their tax returns despite the $313 failure to lodge fine and an increasingly vigilant ATO. With even small mistakes having the potential to blow out into costly fines, tradies running their own small businesses should keep the following EOFY tax tips in mind:

Keep on top of records and receipts

Before lodging your tax return, make sure all your financial records including receipts and invoices are in order. Generally speaking, it’s better to practice good record keeping every day rather than try to do it all at once come tax time. Don’t forget to organise:

• Invoices issued and received
• Tax receipts for equipment and tool purchases
• Vehicle expenses like fuel, maintenance and insurance costs
• Work-related mobile and internet costs
• Payments to employees or subcontractors

Use a good accounting software or app to speed up the record-keeping process and avoid tax time chaos.

Maximise work-related deductions

Those working in trades and construction are entitled to claim a range of work-related expenses that include:

• Tools and equipment (hammers, drills, power tools, etc.)
• Protective clothing and uniforms (hi-vis vests, steel-capped boots, etc.)
• Training and upskilling expenses (licensing fees, safety courses, etc.)
• Home office expenses if you do admin from home
• Union fees and memberships

Check the ATO’s occupation-specific guide to check your entitlements and ensure that you keep records and receipts for work-related expenses. Bear in mind that deductions must be directly related to earning your income.

Write off bad debts

As a business owner if you account for your income on an accruals basis, you may be able to claim a deduction for income that can’t be recovered from a customer or debtor. You are only entitled to claim a bad debt deduction for the amount you have included in your assessable income for the current financial year or earlier.

To write off the debt you must first determine it is a bad debt and have made reasonable attempts to recover the amount. This could be evidence of reminder notices, calls and emails, but does not necessarily need to be formal proceedings to recover the debt. You must then record the decision to write off the debt in writing before the end of the income year to be able to claim it.

Check the ATO’s guide for more details about how to claim a bad debt tax deduction.

Set aside money for tax

Tradies who are sole traders and small business owners can at times struggle with cash flow and neglect to set aside enough funds to cover their tax liabilities. Avoid being caught out in this trap by allocating a percentage of each payment received into a dedicated tax savings account.

You should regularly update your income estimate and the corresponding tax obligations using a calculator or accounting platform. If applicable, make quarterly PAYG instalments to save yourself from a large bill come tax time. As a rule of thumb it’s better to overestimate your income and receive a refund than owe the ATO at tax time. Try using your gross income (income before deducting expenses) as the taxable income amount to stay within set parameters.

Review PAYG and GST obligations

Make sure that your PAYG withholding and GST reporting are up to date. In Australia sole traders must register for GST if their annual turnover exceeds $75,000. It is your responsibility to collect the 10% GST tax from your customers and remit it to the ATO.

If you’re registered for GST, check your BAS statements to see if it lines up correctly with your records. To avoid penalties you must keep accurate records of your turnover – this will also enable you to claim a GST credits to offset against the GST you pay when purchasing goods and services needed to operate your business.

Tax obligations change frequently so it pays to have a good accounting platform and accountant to help you identify additional deductions and employ tax strategies specific to your industry and situation.

When it comes to tax, proactively managing your changing tax situation and planning ahead of time will go a long way towards avoiding a big bill and headache come EOFY. These tax tips will help you minimise your tax liability, maximise deductions and stay compliant with ATO requirements which will not only give you peace of mind, but position your business for strong growth in the years to come.

About the author

Johann Oberholzer is the founder of Sole App. Sole app is fast becoming a must-have tool for Australia’s growing legion of small businesses and sole traders. The innovative and highly user-friendly accounting app is the first of its kind to be tailored exclusively to sole traders. Sole’s mission to empower Australian small business owners by simplifying financial management leaves them free to pursue the high-level tasks that would enable their business to thrive. Users of Sole span the breadth of the economy in industries from construction to fitness, trades, professional services, beauty services and more.

Johann continues to drive business growth at Sole with his extensive background in consulting, data and innovative marketing alongside the backing of an experienced management team and advisory board.