The Two Card Trick For Easier Tax Records
When it comes to income tax returns (for personal and business purposes) all costs must be substantiated to be deducted your assessable income in your tax assessment.
Are drowning in receipts?
Substantiation requires you to keep records, and to have access to receipts and tax invoices so you can prove your claim for deductions against your assessable income.
It’s a hassle to have to record all the little costs you incur on a day-to-day basis as you go about earning your income.
The simple solution - The Two Card Trick
One simple solution is to use two credit cards.
The first credit card is used strictly for private purposes. Pay-wave lunches and coffees, clothes, groceries and other personal items. It’s a two-way rule:
- it is only used for private and domestic costs and
- it is never used for deductible costs.
The second credit card is used strictly for deductible business purposes. Petrol for your car, on-line business payments, business airfares and accommodation, automatic professional subscriptions and so on. It’s a two-way rule too:
- it is only used for deductible costs and
- it is never used for private and domestic costs.
If you buy two books at a bookshop, Jamie Oliver's latest cook book and Roth’s Top Stocks, you would pay for the cook book with your private credit card and you would pay for Top Stocks with your business credit card.
Come tax return time you have an automatic on-line record of your smaller deductible costs and it’s all there ready for the ATO, in the unlikely event of an audit.
You can set your business bank account up so it automatically pays your business credit card off every month, recording the cost as, say, “sundry deductible costs”.
This has two advantages:
- First, you will not incur any interest costs.
- Second, you will not incur any time costs: you will never have to think about it again.
Practical tips like this help you get prepared at Tax EOFY. They all add up to money saved, and time and energy spent on more fulfilling things - than tax returns!
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