36 – The two card trick
Costs must be substantiated to be deducted your assessable income.
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.
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 private 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’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 can be dropped in any client meeting. They all add up to clients who appreciate you and who will trust you as their adviser.