Sole traders are under pressure, but the tide is turning to digital tax tools
It’s time Australian sole traders took tax matters into their own hands, and the technology is there for the taking.
The Australian Taxation Office has given taxpayers, the green light to lodge their tax returns, but this year, taxpayers need to be more wary than usual.
The ATO has heightened its scrutiny of taxpayers, particularly sole traders, who have been warned the ATO will quickly move to court action if tax debts are ignored. The ATO is also watching people with a side hustle or juggling two jobs for incorrect tax declarations.
Meanwhile, with the ongoing cost of living crisis, many sole traders are crossing all fingers and toes that they don’t receive a hefty tax bill.
So it’s time Australians took matters into their own hands, and the technology is there for the taking.
While many industries have embraced digital solutions, sole traders have been slower to adopt them, primarily due to the prohibitive costs of traditional cloud-based accounting software.
These platforms often offer more features than necessary, such as complex financial reporting and payroll services, without addressing the core need of sole traders, which is to understand how business income affects their personal income tax.
This reluctance to adopt modern technology continues to affect taxpayers who associate tax returns with the manual tracking of receipts in shoeboxes or using complex Excel spreadsheets, which may not capture all financial activities adequately, limiting their ability to plan.
Gaining visibility and financial control with digital tools
Soles traders have it tough. Keeping tabs on every expense, quote, invoice, and contract is a job in itself, and the economy has only proven to be harsher for small businesses and sole traders with ongoing inflation and cost-of-living pressures.
When putting together tax return information, they have a lot to keep in mind. This includes non-commercial losses if their business is not immediately profitable, self-education expenses for their own training and professional development, motor vehicle expenses and receipts, business-related travel expenses for meetings and conferences, and more.
It is easy for busy sole traders to lose track of one or several of these expenses. At best, the end result is a smaller tax return than they deserve and, at worst, it is a miscalculation that could lead to significant fines.
However, the tide is turning. A significant shift toward affordable, custom digital tools is underway, transforming tax management for the better.
My Gold Coast startup TaxTank has seen this firsthand while working with clients such as ITP Accounting Professionals, which services over 300,000 clients across the nation.
Unlike many firms that turn away from sole traders and micro-hustlers who lack sophisticated accounting software, ITP has partnered with TaxTank to move from paper-based systems to digital solutions. This collaboration is enhancing real-time financial oversight for sole traders, improving data integrity and reducing internal workflow congestion and inefficiencies.
Digital platforms do more than simplify tax preparation. They provide essential data that can be leveraged for better financial planning and decision-making.
Continuous monitoring and management of financial transactions allow sole traders to adjust and optimise their tax positions throughout the year, easing the year-end rush and ensuring that records are always audit-ready. This shift is not just strategic but also cost-effective, potentially saving hundreds of dollars each tax season while maximising returns.
Tax return watch outs for sole traders
The ATO’s crackdowns on sole traders are wide-reaching, including tougher monitoring of tradies’ utes, greater scrutiny into social media influencers’ gifts received from companies, and proactively chasing down over $34 billion in debts owned by small businesses and self-employed Australians.
Furthermore, the ATO’s ability to uncover any inaccuracies has been bolstered by its rapidly growing access to personal information, including financial transactions and services provided by Services Australia, Amazon, eBay, Uber, Airbnb, insurance companies, and more.
While it makes sense for the ATO to be wary of individuals who may be trying to ‘cheat’ the system, I believe the tax office’s access to personal information in order to find these individuals is a significant invasion of privacy, which, in the case of millions of Australians, will be completely unnecessary.
Sole traders need to be aware, first and foremost, that the ATO is not only able to do this legally but it is already doing it. As well as ensuring all your documentation is in order, recognise that the ATO is using automated data-matching programs to ‘fact-check’ any claims, and any misalignment will not be looked upon lightly.
In today’s economy, every sole trader needs to be able to plan for the long term. As the tax ecosystem gets more complex and intense for sole traders, particularly those without a tax or finance background, turning to digital tools could be a simple and cost-efficient way to avoid headaches with the ATO, while also enabling effective tax planning and money management.
Never miss a story: sign up to SmartCompany’s free daily newsletter and find our best stories on LinkedIn.
