Proper sole trader accounting separates successful solo businesses from struggling ones. Over 770,000 Australians operate as sole traders according to ABS data from 2024. Most start this way because setup takes minutes and costs nothing compared to companies. You register an ABN, start trading, and handle your own books. Simple on paper. Messy in reality. Tax time reveals the chaos when shoebox receipts and guessed numbers meet ATO scrutiny. The tax office audited 380,000 small businesses in 2023-2024, with sole traders making up 62% of that total. Poor record keeping triggers audits. Missing deductions costs thousands. Mixing personal and business money creates confusion. Setting up basic systems from day one prevents these problems and makes tax returns painless instead of panic-inducing.
What Records Must You Actually Keep?
Every business expense needs proof. The ATO requires receipts, invoices, or bank statements showing what you bought, when, how much, and from whom. Keep these for five years minimum. Digital copies work fine. Phone photos of receipts uploaded to cloud storage beat paper stuffed in drawers. Track income religiously. Every payment received gets recorded with date, amount, customer name, and what service or product you provided. Bank statements alone don’t cut it during audits. You need context. Vehicle logbooks matter if you claim car expenses. Record every work trip with date, start location, end location, kilometers driven, and purpose. Do this for 12 consecutive weeks to establish a pattern.
Should You Use Accounting Software?
Yes. Spreadsheets work for tiny operations but break down quickly. Xero, MYOB, and QuickBooks cost $25 to $60 monthly and automate most bookkeeping. They connect to your bank account and import transactions automatically. You categorize each transaction once. The software generates profit and loss statements, tracks GST, and produces reports your accountant needs. This saves hours during tax time. Manual systems force you to reconstruct everything from bank statements. Software shows real-time profit margins. You know immediately if you’re making or losing money instead of discovering it six months later.
How Do You Handle Tax Obligations?
Income tax gets paid through your personal tax return. Business profit adds to your other income like wages or investment returns. Set aside 25% to 35% of profit for tax depending on your total income. Open a separate savings account and transfer tax money there immediately when clients pay. GST registration becomes mandatory at $75,000 annual turnover. Below that it’s optional. Register early if you buy expensive equipment since you can claim GST credits. Lodge BAS quarterly showing GST collected from customers and GST paid on business purchases. PAYG installments start once you earn profit. The ATO estimates your annual tax and asks for quarterly payments. This spreads tax across the year instead of one huge bill.
What Expenses Can You Actually Claim?
Anything directly related to earning income qualifies. Equipment, tools, and materials used for work are fully deductible. Software subscriptions, website hosting, and online advertising count. Professional memberships, licenses, and insurance premiums qualify. Home office expenses work if you have a dedicated space used only for business. Claim a portion of rent, electricity, internet, and phone based on floor space percentage. Vehicle expenses split between business and personal use. Keep that logbook updated. Travel, accommodation, and meals during work trips are deductible. Entertainment usually isn’t unless you can prove specific business purpose. Self-education costs work if the learning directly relates to your current business, not preparing for a new career.