5 Tax Rules to Know as a Sole Trader

Being a sole trader has a number of benefits; plus, it shapes your tax situation and the laws that apply to you. While this is the easiest form of business to start, it is important that you consider a few things before you do. If you already have a business, then these are good to note since tax filing is already a reality for you.

What You Need to Know

Being a sole trader makes business startup much cheaper in many cases. Furthermore, it is the easiest business model to modify. This means that you can easily expand and change your business’s legal status or choose to lessen operation. Additionally, name registration is optional as a sole trader and is only required if you choose to operate under a name other than your own.

Tax Facts to Note

– As a sole proprietor you are not considered an employee of your business. This means there is no obligatory workers’ compensation, superannuation contributions, or payroll tax to.

– Tax planning is limited so you will not be able to use some legitimate means of reducing how much you pay e.g. income splitting.

– You have to pay tax on all income earned which would include business income, your wages/salary, interest, dividends or any other form of income deemed assessable.

– Your personal assets are not exempt from business tax debt or any other debt so the sale of personal property can be used to cover what you owe.

– Your business tax is calculated at personal rates and should be filed on your personal tax return.

What This Means for You

Remember that sole proprietorship gives you full control over your business and assets, lessens the amount of paperwork you are likely to do, and reduces your reporting requirements. This legal status also allows you to offset your business losses using other sources of income; although, come conditions do apply. Overall, being taxed as an individual instead of a company has many advantages, but you should weigh them against the disadvantages to see if they are worth it based on your circumstances.

Speak With a Tax Agent

Are you a little confused about what these tax facts should mean to you? It is good to understand what your filing requirements as well as exemptions are (if any), so speaking with a tax agent is a great idea even if you only do it once. He or she will be able to advise you on the full tax laws that govern sole proprietors and even provide an individualized analysis.

Getting a Bookkeeper

Having to file taxes means that you should be able to go through and understand your business’ financial documents. A bookkeeper can help you keep things in order, provide insight into your tax obligations and help you file on time. He or she can also help you generate reports and present proof in the case of an audit because the information you require will already be sorted. You cannot escape paying taxes so do not complicate the issue; get a competent bookkeeper to help. We are here for you!