Business and personal tax

[AJDave]

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Hi people! Newbie question here, which I’m sure most will know the answer to, when you run a business that pays tax, do most still get a personal tax return? And if so, what’s the best method of separating business and personal tax expenses? As I figure many, personal expenses could also be considered business expenses.

[MichaelF]

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It solely depends on the structure of your business. If you are a sole trader, your business activities will go in your personal tax return in a separate ‘business schedule’ area. If not, the business requires a separate tax return and you will also have to get a personal tax return.

By personal expenses do you mean private and domestic in nature? If yes, they are explicitly non-deductible expenses.

[AJDave]

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Thanks Michael,

I’m registered as a sole trader. So my business tax would be done with my personal tax under my tax file number?

So splitting expenses would be best done with different bank accounts? If it’s fuel for a work trip, it’s from the business account and if it’s fuel for a personal trip it’s from the personal account. And I do my tax off the business bank account?

[bb1]

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AJDave, post: 238189, member: 77795 wrote:

So splitting expenses would be best done with different bank accounts? If it’s fuel for a work trip, it’s from the business account and if it’s fuel for a personal trip it’s from the personal account. And I do my tax off the business bank account?

I actually run it all from the one bank account, some accountants may frown at this. But when I record it in MYOB, if its a personal expense (ie fuel for my car, or groceries), I just code it to owner drawings, so it just goes in a separate bucket, from an accounting point of view..

I know some say you need separate accounts, but than you have to juggle money everywhere, works fine for me, I only need to reconcile one bank account, and its all in front of me.

Although having said that I do run a separate bank account for my second business, but the same principal would apply if I used any personal money out of that.

[James Millar]

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bb1, post: 238191, member: 53375 wrote:

I actually run it all from the one bank account, some accountants may frown at this. But when I record it in MYOB, if its a personal expense (ie fuel for my car, or groceries), I just code it to owner drawings, so it just goes in a separate bucket, from an accounting point of view..

I know some say you need separate accounts, but than you have to juggle money everywhere, works fine for me, I only need to reconcile one bank account, and its all in front of me.

Although having said that I do run a separate bank account for my second business, but the same principal would apply if I used any personal money out of that.

Nothing wrong with using a single account PROVIDED you apply care / diligence in accounting for the private items correctly (to loan account). This is where most fall down which is why accountants tend to suggest keeping business and personal accounts separate. Example – If you use a bookkeeper and have a Xero bank feed its way less work (and cost) for them if they don’t have to filter through business / personal transactions. If the account is entirely business and goes into Xero it cuts down their work. We tend to suggest isolating a credit card for business use (but i can still be a personal card).

Helping build better businesses and better lives with expert financial and taxation advice. [email protected] www.360partners.com.au 03 9005 4900

[AJDave]

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Some good points, so, as for tax, do most sole traders still do a personal tax and personal book keeping? Is it required or not required by the ato? Thanks.

[James Millar]

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AJDave, post: 238206, member: 77795 wrote:

Some good points, so, as for tax, do most sole traders still do a personal tax and personal book keeping? Is it required or not required by the ato? Thanks.

It really depends on the size and characteristics of the sole trader business. If you are a consultant issuing one invoice a month with a handful of expenses then excel would suffice. However if you have a higher volume transaction business that was also registered for GST then a proper bookkeeping software solution would be a wise investment.

As far as compliance goes. For a sole trader, provided you can demonstrate your income and expenses in an organised manner that would be sufficient (not necessarily a double entry accounting platform). However if you move to a company or trust then the requirements change considerably because those entities have various balance sheet tax compliance issues that can only be tracked with a proper double entry accounting system.

Helping build better businesses and better lives with expert financial and taxation advice. [email protected] www.360partners.com.au 03 9005 4900

[Easysmb]

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Hi There
To run a successful business, efficiency and correct business process always plays an important role. The reason most accountant suggest sole trader to separate business and personal expenses by bank account is to make compliance work easier, unless you want to spend your valuable time on the admin work. If personal and business expenses are mixed and accounts are not processed timely, mistakes could be made easily.
And also with the application of cloud accounting, it also makes it easier for you to work with accountant/bookkeeper by using separate bank accounts.
Business is about do things you are good at and good luck.

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