This is an interesting article for those of you who have started a side business.
Starting a side business can open a path towards financial freedom, but that opportunity comes with the risk of falling afoul of the Australian Taxation Office.
Director of tax communications at H&R Block Mark Chapman said that starting a side business comes with tax obligations that have to be met.
The first tip offered when it comes to side businesses is to remember that every extra dollar your business earns will count against your annual taxable income.
Even if you get paid in cash, you’ll need to declare that additional income. Not doing so comes with significant risks, so it’s much better to err on the side of caution.
If the annual turnover of your business is greater than $75,000, you’ll also have to register your small business for GST and apply that tax to transactions. Having to do adopt this extra tax obligation can sometimes work in your favor.
The GST you pay on your purchases or expenses can be offset against the GST you owe; only the net figure is paid to the taxman.
Keeping track of just how much extra income you need to declare can be messy.
Investing in professional bookkeeping software can help alleviate this.
There are plenty of accounting software packages out there that can help you stay on top of your figures.
Having the right records in place is also an important step when it comes to deductions.
Handling this aspect of the tax system correctly can usually be time-consuming, but it’s usually worth the trouble. The total extra income of your side business is going to be dependent not just on the amount earned, but also the amount of deductions made.
Be sure to claim all business expenses whether that’s the cost of buying stock, heating your office or any of the many other expenses you might incur.
Additionally, a common pitfall for new business owners is failing to put aside money to pay their taxes.
Proactive management of your cash flow to set money aside for future tax bills is necessary.
If your customers are slow to pay your invoices, you’ll struggle to pay your debts and you definitely don’t want to be in debt to the ATO.