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If you’re working as a tradie, it can often seem like the accounting and tax rules are specifically geared towards making your life difficult. But the good news is that there are ways to make things much simpler for you. Keeping an eye on your accounts and taxes will not only save you money in the long run but can also help you to avoid being caught out by tricky tax codes and regulations. Read on to find out more about accountancy for tradies.
Don’t Forget About Tax Deductions
The first step to making sure you’re doing everything right in your taxes is to figure out which deductions are available to you as a contractor. This is something that can vary massively depending on your job and your individual situation, so you’ll want to speak with a tax accountant if you’re not sure which deductions you’re entitled to.
Some common deductions that contractors can take advantage of include the cost of vehicle maintenance, fuel costs, vehicle repairs, vehicle hire, tools and equipment, professional memberships, and home office expenses. Again, your specific deductions will depend on your job and your situation, so it’s best to talk to a tax accountant or do some research to make sure you’re getting every penny you’re entitled to.
Keep Track of Mileage
If you’re working on a job that involves a lot of driving, you’ll want to keep track of your mileage. This can be deducted from your taxes as an expense. Be sure to keep a record of the miles you’re driving, the purpose of the trip, and who you’re driving for and why. This can be as simple as writing it down in your daily diary or inputting it into your phone calendar.
If you’re working for a company, you’ll want to check with them about what mileage rate they use and whether they reimburse you for mileage. If you have a specific rate in mind, you can also record it as a note on your calendar or in your diary. You can also use a mileage tracking app to keep track of your mileage, or you can use a mileage log.
Record Everything in Your Daily Diary
As a contractor, you’ll want to keep a daily diary of your work activities. This is an important record that can be used to deduct business expenses that you incur throughout the year. If you’re not sure what to write in your diary, be sure to check with a tax accountant to make sure you’re writing everything down correctly.
Some basic entries you’ll want to include in your diary include the date, the hours you worked, the job you were working on, how much you were paid, and the general location where you were doing the work. It can be helpful to also include the type of work you were doing, the name of the person you were working for, the address, and a phone number.
Keep in mind that you’ll need to keep your diary for at least three years from the end of the tax year in which you wrote it. It’s also a good idea to keep your diary in a secure place, such as a safe or a locked cabinet, in case it’s ever needed for tax purposes.
Record Payments to Employees
If you have employees working for your business, you’ll want to be sure to keep track of their hours worked and the payments they’ve received. You’ll also want to keep track of the federal and state taxes that you’ve paid on behalf of your employees.
If you’re not sure how to keep track of all this information, you can use a payroll management service. These types of services take care of all the complicated calculations for you, so you don’t have to worry about messing up or forgetting to do something. They can also provide you with a record that can be used to support your tax deductions.
Record Assets That Are Going to Be Written Off
If you’ve purchased equipment for your job as a contractor, you can write off a portion of the cost every year against your taxes. This is known as depreciation, and it allows you to write off a portion of the cost each year until the equipment is fully written off. There are a few different methods that you can use to determine how quickly the equipment you own is written off.
The most common methods include the straight-line method, the declining balance method, and the sum-of-the-years’-digits method. You’ll want to talk to tax accountants for tradies to figure out which method is best for your situation. Keep in mind that these methods can change from year to year as well as depending on the type of equipment you own.
Track Receipts for Equipment Purchases and Repairs
Along with keeping track of the depreciation of your equipment, it’s a good idea to keep track of the purchases so that you have proof that the equipment is necessary for your work. You can also record the dates of repairs and the costs of repairs so that this information can be added to your depreciation records.
This can help you to avoid any potential issues with the IRS, especially if you’re working on a job that has a lot of equipment. It’s also a good idea to take pictures of your equipment and keep track of the serial numbers. This can be incredibly helpful in the event that your equipment is ever stolen or needs to be replaced.
Record Selling Prices When You Sell Equipment
If you’ve purchased equipment that you’re planning to sell, you need to keep track of the selling price. The IRS looks at the selling price of an item when determining how quickly you can write the equipment off. Again, you can use any tax accounting services to help you keep track of this information.
You can also use a spreadsheet or a simple document that lists your purchased equipment and the selling price. This can help you to keep track of your equipment without taking too much time out of your day.
Conclusion
As a contractor, you have to balance having all the necessary equipment with keeping costs down. Keeping track of the equipment you own can help you to do both of these things. Additionally, keeping track of your tax deductions and records will help you to save money on taxes when it’s time to file.
Being organized can sometimes seem like a challenge when you don’t have the right tools to help you. If you want to take your accounting and organization to the next level, try a new tool! There are a ton of apps and online resources that can help you stay on top of things and make it easier to stay organized.
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