Bookkeeping Tips for Sole Proprietors
1. Keep an accurate record of revenue and expenses
You can draw up these records by way of a simple spreadsheet based on your invoices and then confirm these amounts by cross-checking them against your bank statement.
SARS will want to see these details, so being organized will count in your favour.
Download our excel spreadsheet here.
2. Keep separate sets of records for business and personal
Remember only your business expenses are deductible, so it’s very important to keep your personal expenditure separate. Taking an important client out for dinner would be claimable, however ‘date night’ with your partner would not be – SARS are known to be weary of entertainment expenses and checks them closely, so be warned!
3. A separate bank account for your business makes thing easier
When you are recording your business income and expenses in your accounting system, it will make things simpler and more efficient if all business transactions are in their own separate bank account (and not mixed in the same account as your personal expenditure).
4. Keep a logbook for all business travel
Should SARS request supporting documents from you (highly likely for sole traders!) any travel expenses you have claimed will be disallowed if you can’t furnish them with a detailed logbook backing up your business mileage.
5. Make sure you claim ALL of your business expenses in your tax return
Tax is payable on your business’s profit, which is calculated by subtracting your business expenses from your business income. This means that the higher your business expenses, the less will be the profit, and therefore the less tax you will pay!
Typical examples of business expenses include internet, office rent, electricity and water, staff costs, and wear and tear on your business assets.
6. Keep a record of all calculations you made when claiming business expenditure in your tax return
For those expenses like petrol and cell phone which may be personal or business, you will need to identify exactly what portion relates to business use and which portion is personal.
For the vehicle expenditure, you can use your logbook and for cellphone expenses you can use cellphone records to assist with your calculation to provide to SARS in case they require proof of your business expense claim.
7. You must have a separate office to claim home office expenses
As a sole proprietor, you can claim all your business expenses, but if you work from home, there are specific requirements for claiming a deduction for your office costs.
The main one is that a portion of your home must be specifically kitted out and exclusively used for your work purposes. Working from your couch (with Netflix on in the background) does not qualify!
8. You must apportion your home office expenses
If you do qualify to claim home office costs, you can only claim the portion of household expenses that is related to your office space. You can work this out by calculating the ratio of the floor area of your office to the total floor area of your home and then applying this percentage to your total household costs. For more details on the calculation, you can refer to our home office blog.
9. Keep all your documents for five years
Last, but not least, safely store your documents for at least five years after you have submitted your return as this is the retention period prescribed by SARS.
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