One of the cheapest ways to make tax time easier is to stop mixing business and personal money. Mixed accounts cause missed deductions and awkward questions.

What the ATO says

If you operate as a company, partnership or trust, the ATO says you must have a separate bank account for tax purposes. Sole traders are not required to open one, but the ATO says it is a great idea because it saves time working out which transactions are personal and which are business.

Mixed use expenses

Some costs serve both purposes, such as a phone, internet or a vehicle. The ATO says you need clear documents that show the business portion, and you can only claim that part.

Simple habits that help

  • Bank all business income into the business account. This includes cash takings.
  • Pay business costs from that account.
  • Pay yourself on purpose. Move money out as wages, drawings or a documented loan, rather than dipping in whenever you need cash. If you run a company, this matters even more, so ask your accountant how to record it.
  • Reconcile regularly. The ATO suggests checking your records against your bank so you understand what money moved and why.
  • Back up your records. Most business records need to be kept for 5 years, and the ATO recommends backing up electronic records off site or in the cloud.
  • Use the free tools. The ATO's myDeductions feature in the ATO app helps sole traders track income, expenses and car trips.

The bottom line

A separate account gives you a clean trail when the ATO, your bank or your accountant asks questions. If your accounts are already tangled, start fresh from the first day of next month and ask your accountant how to tidy up the past.

This tip is general information only and does not take your circumstances into account.