Are You A Sole Trader? Here’s What You Need To Know

As a sole trader, there are a number of particulars about your business that you should keep in mind.

One of these particulars involves understanding the legal and tax formalities that surround your type of business. Furthermore, you’re going to want to understand how tax returns apply to sole traders.

To begin with, there are some basics that you will want to understand.

What Sole Traders Need To Know

A sole trader is defined as someone who runs their own business. Controlling/running this business is achieved through Tax File Numbers (a TFN), and you can later apply for Australian Business Numbers (an ABN). Applying for an ABN is absolutely free.

There are a number of additional things that should be kept in mind:

• As the sole trader, keep in mind that you are also solely responsible for all of the taxes that your business is required to pay.
• All of your business income must be included. Furthermore, you are going to want to have everything reported on your individual tax returns.
• In the event that there are business-related expenses incurred in your daily activities, be sure to know what is and what is not tax deductible. And ensure thorough records are kept.
• You will want to pay quarterly Pay-As-You-Go instalments for the amount of taxes you plan to pay at the end of the year.
• Remember that as a sole trader, you will not be able to claim a deduction for money taken from your business. Amounts taken from your business will not be considered wages for tax purposes, even if you tend to think of them that way.
• In the event that you are largely being paid for personal efforts/skills, you may receive what is known as Personal Services Income. Also known as PSI, deductions as they relate to this particular income may have to be treated in a different fashion.
• Remember that as a sole trader, both you and your business are legally liable for any of the expenses that come to be associated with your business dealings.
• Although you must pay the same taxes as individual taxpayers, keep in mind that as a sole trader, you might be able to avoid taxes completely. This can potentially apply to situations in which your business struggled, or you didn’t set out to make a ton of money anyway.

Young Financial Group Accounting specialists are here to assist you navigate your way through taxes.