Most sole traders will agree that tax returns are pretty high up on their list of most dreaded business tasks to do. Whether you run a food business, are in the tech industry or work as a tradesperson, tackling your books in one go can lead to headaches a-plenty.
But stress alone isn’t the only reason it’s a bad idea to put off sorting your finances until the last minute.
As we enter the new financial year (and a welcome fresh-start), let’s take a look at all the ways you can benefit from tracking your income and expenses as you go.
(Tip: you can find the key self-employed tax dates to be aware of here.)
#1 You’ll feel more in control of your money
Working as a sole trader comes with tons of perks, but there are a lot of extra things to consider too. Not only do you need to find clients and keep your cash-flow going strong (which is where Penny can come in very useful!), you need to make sure you’re saving enough to pay your income tax.
This can feel pretty daunting if you don’t have full visibility over your earnings and expenses throughout the year. But by tracking your finances in real-time, rather than leaving everything to the last minute, you’ll soon realise you feel so much more in control of your money.
You’ll have greater confidence over those important financial business decisions, and you’ll be able to keep a closer eye on your personal cash-flow too. From planning holidays to investing in your company, you’ll have a clear view of what you can afford, and what needs budgeting for.
#2 You’ll be able to file your tax return early
Filing your tax return early means you’ll have proof of earnings sooner rather than later, which can be really useful for applying for things like mortgages and loans, or accessing other money services.
Tracking your income and expenses across the financial year means you’ll be well-equipped to get that self-assessment filed as soon as the new financial year begins. Bingo.
#3 Your tax return will take minutes, not hours
Tax returns can eat into hours upon hours, if not days, when you leave sorting your finances till the last minute. Save yourself the hassle (and a whole lot of time) by spending just a few minutes each week sorting through your income and expense transactions.
It’s the only way to avoid that marathon of searching for receipts, and trying to locate rogue invoices.
#4 You’ll be less likely to overpay on your tax bill
When you don’t track your business purchases through the year, it can be really easy to miss business expenses when it comes to doing your tax return. The result? Paying more tax than you need to.
The good news is, there are lots of great business expense tracking apps out there, which make it significantly easier to keep tabs on what you're spending for your business from week to week.
Making it your mission to track those purchases through the year could genuinely lead to a lower tax bill than if you were to do things in one go. Nice.
#5 You’ll be less likely to make mistakes on your tax return
Making mistakes on your tax return can end up costing you majorly in time, and even money if you miss the tax deadline and incur penalties.
Tracking your income and expenses across the year makes it much less likely that you’ll miss invoices or expenses, or calculate things wrong.
First, you won't be rushing to sort through your accounts as the deadline looms. Second, you can be confident your income and expense data is accurate, as you recorded it when the transactions were fresh in your mind.
Tracking your income and expenses across the year can sound like extra hassle when you’re so busy running your business. But it really doesn’t have to be, thanks to the tech that’s now available to help with this. We’d recommend using the tax software app, Finmo. It lets you automate your income and expense tracking, and gives you the chance to link with an accountant if you need help with anything.
Keeping tabs on what you earn and what you spend for your business through the year not only saves you a lot of hassle – it lands you firmly in the driving seat of your own finances. And that’s a place every sole trader should be.
If you want to learn more about self-employed business tax and finance, Finmo are also running two finance education courses in April. Tax 101: Intro to taxes and Tax 202: Expenses and the not so basics.