Receipt Tips for Tax Time
Many small business owners lose to the ATO and become a casualty of tax court. Deducting thousands of dollars for travel, meals, entertainment, automobile and mobile expenses, but like many small-business owners, they don’t keep the strict substantial requirements of the ATO. While they are able to produce books and records proving the expenses were incurred, they fail to show receipts, notes and documentation that the expenses were business related. In the words of the court, the only evidence they presented to support the business purposes of the expenses were their “own broad self-serving testimony and uncorroborated notes.”
The reality is that you may be entitled to these deductions, but if you don’t follow the rules, you could be left out in the cold.
Here are some basic tips:
1. Keep all receipts.
This point cannot be overstated. How many of us often ignore or quickly say “No” when asked whether they want a receipt? Not small-business owners! Is this because they spend hours upon hours organizing them during the year and look forward to turning them into their accountant? Definitely not! Savvy business owners simply know to keep receipts because if they don’t, their tax return could be in peril. The reality being – Receipts are audit protection and we have to take that seriously. Arguing with the ATO can cost you a lot more time and money than just keeping your receipts.
2. Make sure you know your receipts business purpose.
This is an especially great idea for dining and entertainment expenses. It can be easy to remember why you bought a Multifunction office machine), but it could be a lot harder to remember who you went to dinner with at Red Lobster three years ago and what the business purpose was.
3. Scan receipts and keep them at least seven years.
Yes, the ATO can come knocking for documentation and audit you up to seven years back in some cases. However, hoping that the ink on your Home Depot receipt hasn’t faded away is a whole other issue. The ATO allows taxpayers to scan receipts and store them electronically. But keep a back-up, because crying about your hard drive crashing isn’t going to help you any more than “My dog ate my receipts.”
4. Take a picture with your smartphone.
With today’s technology, it’s easy to make a note on the receipt and then take a picture of it. This is a great idea and there are a whole host of apps for the iPhone and Android that can help you better track your expenses.
5. Keep a daily business journal.
Keeping a daily journal for your business may sound ridiculous and more work than you need, as if you’re not already busy enough. However, it can be simply accomplished by keeping a good calendar in your Outlook or Google Calendar. It has been known for an auditor to actually ask for a printout of a clients Outlook calendar to substantiate various deductions being claimed. A very good reason to keep a detailed schedule.
6. Stay away from cash.
Using cash for expenses seems to be a real death trap for any small business trying to keep good bookkeeping records and documentation for an audit. Cash is hard to track, easy to spend and nearly impossible to reconcile with receipts. Stick to debit and credit cards to better track your expenses and then combine them with receipts.
It is no secret that audits will continue to increase and the rules will be only more strictly enforced. The best course of action for small-business owners is to be prepared with a better set of books and receipts for all of their expenses, staying one step ahead of the “tax man.”
Finding Out More About What to Claim
You can claim undocumented expenses up to $300. Once that limit is reached you need to show proof. It is advisable to keep these receipts, since the Australian Tax Office can request to see them, should they choose to check up on you.
Making it Easier to Comply
The ATO are committed to administering the tax and superannuation system in a way that makes it as easy as possible for taxpayers to comply. Most people want to do the right thing so they’re always looking for helpful ways to improve how you engage with them, to make it easier and cheaper for you.
Making it easier to comply describes their current and future priorities in delivering better services to you. Their research tells us that their relationship with the community is improving over time, but they also know there are a few areas where their report card says we ‘could do better’. They’re working on those within the parameters of our budget.
Previously, they have published Making it easier to comply as a printed booklet. This year, embracing a faster and more cost-effective online option, they’ve uploaded their ‘report card’ directly to their website – www.ato.gov.au. This will enable them to make regular updates and keep you better informed.
“We are committed to being flexible, responding to changing priorities and improving our services. To achieve this we look for ways to make it easier, cheaper and more personalized for the community to interact with us. By this we mean:
• Easier: we aim to make it easier for you to understand your tax and superannuation obligations and how to meet them.
• Cheaper: we aim to make it cheaper for you to comply with your obligations by reducing the work, time and effort involved.
• More personalized: we aim to provide products and services that make sense to you and will target our compliance activities to minimize their impact on those who are trying to comply.
In these pages we outline major initiatives we are introducing to make it easier for people to comply with their obligations. Our Compliance Program outlines the wider range of services we provide to help people comply with their obligations and receive their entitlements.
We use a set of principles to guide the design of these improvements and to ensure that we understand and meet your needs. We will also continue to consult, collaborate and co – design. With the community to guide our future priorities and improve community interactions with us.
Our current priorities are to:
• continue to improve our website
• continue to make it easier for individuals to complete and lodge their tax return using e-tax, including pre-filling
• continue to improve our differentiated service and treatment
• help connect people to their super
• help business interact with us online
• provide you with an integrated view of your tax position
• consolidate our A better way for tax agents
• Work with other government agencies to rationalise government reporting and registration requirements to minimize red tape.
We’ve learned some important lessons from our experiences so far and we know we have to continuously take new legislative requirements, government initiatives and community expectations into account when we plan for the future. We also look at how people use our products and services and how satisfied they are with them to see whether we’re delivering what they want and what improvements we can make.
Our focus is on continual improvement. The initiatives we implement, through until 2010, under our change program will be a big part of delivering improvements to the way the community interacts with us. Our community experience tables provide detailed information about the specific initiatives we’re working on.”
Dealing with Disasters – Home
If you have been affected by the fire disasters in Tasmania, Victoria or Perth, or more recently the devastating flood disaster in Qld or NSW – either as an individual, a business or as part of a wider community – you may need help reconstructing your records, getting deferrals, accessing your money or making or receiving payments and donations. Click on the link below for more information about what you need to know.
Correct a Mistake or Dispute an ATO Decision
Find out how to disagree with ATO decisions, fix mistakes they have made, fix mistakes you have made, tell them about previously undisclosed income, incorrectly claimed deductions or misleading statements you have made and ask for penalties or interest charges to be reduced or cancelled by.
It’s a Taxing Time, But it Doesn’t Have to Be That Way….
The tax man waits for no one, and the October 31 deadline for submitting returns is fast approaching.
The good news is that most people who file a tax return end up with a tax refund, rather than a tax bill. In which case, hurry up and remember, one of our friendly J Tax team can help you with the time value of YOUR money. You want that money in your bank earning interest, or paying off your debts, as soon as you can don’t you?
Only those expecting a tax bill – because you did extra work on which tax was not withheld, for example – can sensibly put off doing their tax return until the last minute. If you owe tax, it’s better to keep the money in your bank account for as long as you can, potentially earning interest or using it to paying off other debts, until the tax man takes it away.
Let’s face it, most people aren’t tax enthusiasts. The bigger proportion of Queenslanders for example, will hire one of our J Tax team this year to do theirs, either because it’s just too much of a hassle, or because a later deadline is available for people who file through an agent. More than a million Australians will simply fail to lodge a return at all. Some of these will be rich, tax-dodging cheats. But they will be the minority. Most of these “non-lodgers” will be students or people on low incomes who would have little tax to pay – in fact, they might even get a refund if they did file – but who just find the process too overwhelming.
These people represent only a tiny proportion of tax collections but will get to go around feeling like criminals for no good reason for the rest of the year just because the tax return process is so onerous.
Annoyed at having to give up a weekend to rifle through shoe boxes of dusty receipts? So you should be.
Go to “Meet the Team” on this site and contact the person at J Tax most suited to meet your required needs or