Guide to end of financial year for sole traders

Get familiar with common sole trader tax deductions and make the most of tax time.

 

 

End of financial year is an important time for your small business. With some preparation and planning, you can make tax time work for you – not against you.

 

Here we’ll walk you through what you can do to get prepared for tax time, and help you think about what business expenses you may be able to claim.

Get your financials in order and up-to-date

As a sole trader, the first thing you’ll need to do is get your financials in order.

 

You’ll need a record of your business financials for the year, which usually comprises of a balance sheet and profit and loss statement. 

 

A balance sheet is a statement of your financial position for the year. It outlines your assets (stock, cash, money owed to you) and liabilities (loans, money you owe). It also shows your net assets or equity. 

 

A profit and loss (P&L) tells you how much money your business made over a period of time. It lists your income and expenses. Subtracting your total income from total expenses allows you to calculate your profit. 

 

Need help putting your financials together? The Federal Government has balance sheet and profit and loss templates to get you started.

Ensure you have sufficient cashflow

As a sole trader, you may not have made PAYG payments throughout the year. Depending on your business income, you may be faced with a big tax bill to pay at the end of financial year. It may be difficult to estimate your tax costs but try to put an amount of money aside on a regular basis throughout the year in preparation for tax time. 

 

This is one of the most important things you can do as a sole trader to ensure your cashflow isn’t affected when it comes to tax time.

 

Think about your tax deductions

You can generally claim a deduction for most expenses you have to keep your business running. It’s important to keep a record of your business expenses by keeping receipts you’ve accumulated throughout the financial year.  

Common tax deductions for sole traders

Some examples of tax deductions include: 

• Depreciation on business equipment like laptops and mobile phones
• Software used for your business 
• Marketing costs
• Business finance costs 
• Business travel 
• Professional memberships
• Tax accountant costs
• Interest paid on business loans

 

Find out what you may be able to deduct on the ATO website. 

Do you operate your business from home?

If you operate some or all of your business from your home, you may be able to claim tax deductions for some home-based business expenses, such as:

• occupancy expenses (such as mortgage interest or rent, council rates, land taxes, house insurance premiums)
• running expenses (such as electricity, phone, decline in value of plant and equipment, furniture and furnishing repairs, cleaning)

Do you use your car for business purposes?

The expenses of motor vehicle trips for business purposes are generally tax deductible. This usually means travel between business locations. You may also be able to claim depreciation on the vehicle for the loss of value and wear and tear on the vehicle.

Do you own business equipment?

Similar to tax deductions for vehicle use for business purposes, you may also be able to claim depreciation on the loss of value and wear and tear on equipment used in your business.

 

Depreciation deductions may be claimed on most asset types as long as it’s used for your business, including:

• Computers and software
• Office furniture including filing cabinets and bookshelves
• Hand tools, such as spanners, hammers and screwdrivers or power tools, such as grinders, sanders and hammer drills
• Protective items, such as hard hats, safety glasses, sunglasses, sunscreens and cosmetics containing sun protection
• Professional libraries
• Safety equipment
• Technical instruments
• Forklifts

 

You can also claim the cost of repairs and insurance cover on your tools and equipment and any interest on money you borrowed to buy these items.

 

Find out more about equipment tax deductions on the ATO website.

Consider buying new business equipment 

Start to consider whether you’ll need new equipment in the coming year, or if existing equipment needs to be repaired or replaced. Depending on your purchase, eligible vehicles or equipment may also provide immediate tax deductions.    

 

Help your business get equipped for the year ahead with a business vehicle or equipment loan. Don't forget to consider what monthly repayments your business can afford. Equipment financing can also be helpful when you don't want to tie up your working capital.

Equip yourself with a plan 

A simple plan can remove a lot of the stress associated with tax time – and it can also make you feel empowered to take control of your taxes.

1. Get your financials in order and up to date
2. Compile a list of expenses you can claim
3. Consider how government incentives could help you
4. Put the required dates in your calendar to give yourself a reminder of tax deadlines