Business and Personal Transactions

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How to Reduce your tax and accounting fees while paying the correct amount of tax and not a cent more?

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Business and Personal Transactions

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Business and Personal Transactions

Separating business from pleasure is a good tax and financial strategy otherwise, some large and unexpected tax bills might land on your desk.

In the early stages of running a business it is easy to fall into the mistake of mixing personal transactions with business accounts. Once you get into a bad habit like this, it is often difficult to change as the business grows and other issues demand your attention. Yet, whenever business owners get into trouble with the Tax Office, experience profitability or cash flow problems, or have difficulties with lenders, the reasons are depressingly similar. It’s usually because they have mixed personal and business transactions, ending up with confused and confusing, financial records. In addition to the tax problems this can create, it’s also an indicator to people outside the business, such as bankers, lenders and potential business partners, that there could be other, deep rooted problems in the business. Whether or not this is true, it’s often simply too difficult to discern an accurate position from the accounts.

Inter-mingling assets and financial transactions will lead not only to tax and commercial problems but also to higher accounting costs, will put owner’s personal assets at unnecessary risk, and has the potential to reduce the value of the business.

Avoid Financial Confusion

Always have a separate bank account for the business and make sure private transactions are handled out of a separate bank account.
You should pay yourself a consistent amount such as a salary of loan repayment.
Owners should take care when drawing cash out of the business when some of it is used to pay business expenses. They should make sure they reimburse themselves for business expenses paid personally, passing all receipts for such claims to the business for tax purposes.
Avoid using the business to pay personal accounts. If you want to take cash out of the business, choose the most tax effective way to do so and avoid getting into trouble later. For example, declare a dividend to take advantage of franking credits instead of taking a loan.
Make sure there are good records for any business loans raised to preserve the tax deductibility of interest. This is particularly important if loans are raised through a mortgage on your home or outside the business in some other way.
Keep all documents that support the transactions that are shown on your business bank account – this will reduce accounting costs and the possibility of tax problems. It will also allow the development of a clear set of business accounts to impress business partners.
If you are not sure of the right approach on a payment or expense, ask your accountant before you raise a cheque. A lot of trouble can be prevented by taking the correct action in the first place.

Disclaimer: This is not advice. Items herein are general comments only and do not constitute or convey advice per se. The information contained in this article is for guidance only and should not be relied upon without obtaining professional advice having regard to your specific circumstances.
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