The five biggest mistakes to avoid during tax time
For many businesses, the looming June 30 deadline can be one of the most stressful and overwhelming times of the year as business owners juggle everyday responsibilities with added tax time obligations. Matthew Prouse, Head of Industry, Xero gives his advice to avoid mistakes this tax time.
Not only is tax time stressful, but it can also be fraught with errors. A recent survey from Xero found that two-thirds of small business owners said it’s easy to make unintended mistakes at tax time, while one in four admitted to actually making mistakes when lodging their first business tax return due to a lack of knowledge or not understanding the requirements.
So, regardless of whether you’re preparing for your first EOFY or you’ve been in business for some time, here are five of the most common traps we see at tax time and tips to help you avoid them.
Not asking for help
The biggest mistake a business owner can make at tax time is not asking for help – in fact, nearly half (42 per cent) of small business owners list not getting professional advice early enough as one of the biggest pitfalls of tax time. While it may be tempting to go at it alone, it can be a recipe for disaster when you’re unclear or unsure of your obligations.
There are more than 25,000 qualified accountants and bookkeepers experienced across a variety of industries ready to help you. If you’re unsure where to start, Xero has a directory of experts on file.
Not understanding regulation
One of the most common traps we see small business fall into at tax time is failing to understand the relevant regulation and recent law changes. It often catches businesses off guard and can lead to serious errors and potential fines come tax time. Tax is complex and Google is not a registered tax advisor.
Get informed about the regulation relevant to your business, the ATO is a good place to start, or, speak to your qualified accountant or bookkeeper.
Poor documentation habits
Not keeping business receipts or the poor organisation of them throughout the year creates a nightmarish tax time – it’s no wonder that most small business owners believe working on the weekend (65%) or cleaning the entire house (58%) is more desirable than doing their taxes. Many still fall short by June 30 having spent hours frantically searching for receipts and coming up empty.
There’s one quick fix: keep on top of your receipts year-round. There are several online tools and apps available to help you keep your receipts in order.
Using outdated manual practices
Startups and small businesses leveraging outdated manual practices are wasting time and resources, and are ultimately missing out on vital opportunities to run their businesses more efficiently.
Opting for pen and paper reporting or manually entering data into spreadsheets is not only a time-waster, it often results in errors being made which can be dire come tax time.
There are numerous digital tools to help you stay organised and your business on track to prepare for tax time. The ATO smartphone app is beneficial to very small businesses with relevant tax information and tools all-in-one place. Cloud accounting solutions can help businesses to easily manage their accounting and payroll, while apps such as Hubdoc or receipt Bank remove the burden of receipt-keeping in one simple app.
Not keeping a business diary
One critical mistake businesses often make when starting out is not keeping a business diary. This can be painful come tax time as businesses without business diaries can struggle to discern between personal and business spending.
For instance, if you’ve taken a client out for coffee and didn’t keep a record, it can be difficult to differentiate the receipt from a personal purchase made on the same day at a later date. Without this information, you cannot lodge the receipt as a business expense.
One of the easiest ways to keep track of your activity is to keep a business calendar linked to a business email. That way you can trace back all your client meetings to the time and date saved online in your calendar.