Sole Trader Tax: 10 Ways To Save On Taxes in 2025

Sole trader tax can be stressful, but it doesn’t have to be.

My sole trader tax journey started when I first set up my accounting business and decided to live in Peru 🇵🇪🦙

I remember sitting on my balcony overlooking the Andes, sipping coca tea, and marvelling at the freedom I’d somehow created.

No office cubicles, no commute—just the sound of the mountains and the joy of finally having freedom in my life (it was a long time coming!).

But that freedom came with a catch: navigating the maze of sole trader taxes, and as my business grew: company taxes.

I quickly realised that while running your own business can create a flexible lifestyle, it also means taking charge of your finances.

That’s when I started doubling down on the best ways to save on taxes.

Whether you’re working from a cosy home office, your favourite cafe, or chasing sunsets on the other side of the world, it’s essential to pay less tax wherever possible (it’s one of my many passions in life).

The good news? It’s not as complicated as it sounds, and I’m going to show you how.

Here’s 10 proven ways to minimise your sole trader tax in 2025. These are strategies I’ve used myself or gained from my experience as an Australian tax accountant:

1. Maximise Your Business Deductions
2. Superannuation Contributions: Save Now, Plan for Later
3. Prepay Your Expenses
4. Explore Income Splitting Options
5. Claim Tax Cuts
6. Automate Your Record-Keeping
7. Register For GST
8. Transition to a Company or Trust Structure
9. Get Professional Advice
10. Bonus Strategies for Sole Trader Tax Savings

1. Maximise Your Business Deductions

When it comes to running a business, the Australian Tax Office (ATO) allows you to claim a range of deductions. Make sure you focus on expenses directly related to your business to reduce your taxable income and (and your sole trader taxes).

Need it to run your business? It’s deductible.

Common Sole Trader Tax Deductions Include:

• Home office expenses: Whether it’s a desk in your living room or a full-blown home office, you can claim either a fixed rate or a portion of your rent and electricity.
• Phone & internet: You can claim the business-related portion of your phone bills and internet costs. Just make sure you track how much you use these for running your business.
• Vehicle expenses: Do you use your car for work? Keep a logbook to track business-related trips and claim a percentage of fuel, registration, maintenance, and insurance costs. Bonus points if you have a ute or 4WD that carries more than 1 tonne (you’ll get a better tax deduction). If your travel is minimal, you could use the cents per km method instead.
• Work-related tools and equipment: Laptops, phones, cameras, desks, chairs, or software subscriptions—these are all deductible. Items over $300 must be depreciated over their useful life, but the instant asset write-off is available for an immediate deduction (up to certain limits).
• Marketing and training costs: Did you spend money on advertising, website hosting, or online courses to improve your business skills? These are all tax deductible.
• Industry memberships: Did you pay union fees or membership fees to an industry body? Include these in your sole trader tax return.
• Accounting & legal fees: If you used these to run your business, they’re deductible.
• Work-related travel: Food and accommodation is tax-deductible if you travel to see your clients or attend conferences. Just make sure to keep a travel diary / list of business meetings, dates, and amounts spent.

Tips for Claiming Deductions

• Keep detailed records of your expenses. Bank statements, excel spreadsheets, or accounting software—use what you like! To make your sole trader tax easier, Xero, MYOB, or Quickbooks can help (and you can access them while on the road if you need to send a quick invoice!).
• Always separate your business and personal expenses. A dedicated business bank account makes this much easier.

💡 Don’t underestimate small expenses like office stationery or app subscriptions—they add up over time.

More deductions = less tax. And less tax = more money for your travel fund! ✈️

2. Superannuation Contributions: Save Now, Plan for Later

As a sole trader, you don’t receive employer super contributions. But making your own super contributions is a win-win: you can reduce your taxable income while setting yourself up for a secure retirement.

Why It Pays Off

• Concessions Contributions = $27,500 for 2024, and $30,000 for 2025. That means you can deduct super contributions up to these limits and reduce your taxable income.
• Non-Concessional Contributions = $110,000 for 2024, and $120,000 for 2025. You won’t receive a tax-deduction for these contributions, but you pay less tax on investment earnings inside your super fund (up to a 30% annual tax saving).

Super contributions are taxed at 15% when they’re contributed and on any earnings thereafter. This is much lower than most marginal tax rates (up to 47%).

For example, if your marginal tax rate is 32.5% and you contribute $15,000 to your super fund, you’ll save $2,625 in tax.

💡 You can make super regularly throughout the year or as a lump sum in June. Just make sure it’s in your super fund before the 30 June deadline.

3. Prepay Your Expenses

Timing your deductions can make a huge difference. By prepaying certain business expenses before 30 June, you can claim them in the current financial year.

This helps increase your deductions in the current tax year (which results in less tax paid 💪).

Common Prepaid Expenses

• Rent or lease payments.
• Insurance premiums.
• Software subscriptions or professional memberships.
• Stationery, tools, or office supplies

This is especially useful if you expect to earn more in the current year than the next, as it helps reduce your sole trader tax.

4. Explore Income Splitting Options

While sole traders can’t directly split income like companies or trusts (more on that later on), there are ways to distribute income within your family to reduce your tax burden.

How It Works

• You can employ a family member in your business. For example, you might hire your spouse or teenage child to manage admin or marketing tasks. You can pay them a reasonable wage which shifts some of your sole trader income to them (note: it must be legitimate and at market rates).
• Transition to a trust or company structure to allow income splitting. This might not suit every sole trader, but it’s worth exploring if your income grows significantly (above $100k per year).

💡 Important: Keep all your payments legitimate and compliant with ATO guidelines to avoid penalties.

5. Claim Tax Cuts

In 2025, the government has released new tax cuts for various income earners. The personal income tax brackets are increasing, which results in less tax paid for people earnings less than $190k per year.

You don’t need to apply for these tax cuts—they’re automatically calculated by the ATO.

💡 Do your best to get your income under the relevant thresholds to ensure you get the benefits.

6. Automate Your Record-Keeping

Keeping accurate records will help you maximise deductions and stay compliant. However, it can be time-consuming without the right tools.

Best Tools for Sole Trader Tax

• Xero: User-friendly accounting software for managing invoices, expenses, and tax reporting (this is my favourite by far).
• MYOB: Another option for tracking income and expenses, especially if you’re GST-registered.
• Expensify: Ideal for scanning and categorising receipts.
• Employment Hero: For managing staff pay runs and HR.

Automation saves you time, reduces errors, and makes tax time much smoother. Plus, it helps to capture all your deductions so that you don’t miss any.

7. Register for GST

If your annual turnover exceeds $75,000, you’re required to register for GST. But even if you’re below this threshold, registering for GST can help you save in some cases.

• Running at a loss? You might want to register for GST to recoup the GST on expenses.
• Lots of foreign sales? If most of your income is foreign exports (services or products), this will be GST-free sales. By registering for GST, you can claim back the GST on your expenses (without paying any GST on your foreign sales).

Benefits of Registering

• You claim back GST on business expenses, such as office supplies, insurance, and equipment.
• It creates a professional image for your business, as GST registration signals a certain level of turnover.

Drawbacks

• More paperwork + accounting fees: You’ll need to lodge monthly or quarterly BAS (Business Activity Statements).

8. Transition to a Company or Trust Structure

As your income grows, a sole trader tax structure may become less tax-efficient. Once you starting earning over $100,000 per year, it’s worth considering a transition to a company structure (for tax and liability reasons).

Why Consider a Company?

• Lower Tax Rate: Companies that are small businesses are taxed at 25%, which can be significantly lower than individual marginal rates (which can go as high as 47%).
• Liability Protection: Operating as a company separates your personal assets from business liabilities, reducing personal financial risk.
• Income Splitting: A company structure allows for greater flexibility in distributing income among shareholders (owners) or directors.

Why Consider a Trust?

• Income Splitting: Trusts can distribute income to beneficiaries to split income across multiple individuals for tax purposes. This is especially beneficial if you have a spouse or adult children who aren’t working full-time.
• Asset Protection: Operating as a trust can protect your assets in the event of being sued. However, it needs to be set up correctly, so it’s worth getting accounting or legal advice.

The Trade-Offs

• Higher accounting costs, including company registration, trust deeds, and annual reporting.
• There are stricter compliance requirements than for sole trader setups.

💡 Speak with an accountant to determine whether the transition is right for your business and personal circumstances.

9. Get Professional Tax Advice

Sole trader taxes can be overwhelming, especially with ever-changing regulations. Engaging a tax accountant or financial advisor isn’t just an expense—it’s an investment in your business’s success.

What They Can Help With

• Identifying deductions you might overlook.
• Tax planning strategies for sole traders.
• Structuring your finances and business for maximum tax advantages.
• Ensuring compliance with ATO rules and avoiding audits.

💡 Choose a tax advisor experienced with sole traders and small businesses. They’ll understand your unique needs and goals.

10. Bonus Strategies for Sole Trader Tax Savings

If you’re keen to go the extra mile, here are a few more ways to optimise your taxes:

1. Review Your Insurance Policies: Business-related insurance, like professional indemnity, workcover, or income protection, is tax-deductible. Regularly review your coverage to ensure it’s adequate and claimable.
2. Track Every Dollar: Using accounting software can help capture every transaction to make sure you don’t miss any expenses or deductions. This helps you stay organised and ready for tax season (and reduces a LOT of stress).

Common Pitfalls to Avoid

Even with the best intentions, mistakes happen. Here’s what to watch out for:

• Overclaiming deductions: Ensure every claim is backed by receipts or bank statement records.
• Missing deadlines: Lodge your tax return and BAS on time to avoid late penalties (and to keep off the ATO’s audit radar).
• Mixing finances: Keep business and personal accounts separate to simplify record-keeping and audits.

Bringing It All Together

Being a sole trader is about freedom, but there’s also a level of responsibility that comes with it, especially when it comes to sole trader taxes.

With these 10 tax strategies, you can confidently approach tax season in 2025 and keep more of what you’ve earned.

Here’s to running your business with confidence, saving on taxes, and enjoying the freedom that comes with being your own boss. Whether you’re working from a beach in Bali, a café in Paris, or an office in Sydney, paying less tax will create more freedom in your life.

Want To Know More?

Need help with your sole trader tax setup? Looking for a new sole trader accountant? Adventure Tax can help. To find out more, book a free call with me here.

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