Small business tax planning can be daunting – especially when it adds to your already exhaustive To Do list. At William Buck, we’ve found that many small business owners can become so focused on the day-to-day operations of running their business that they leave their End of Financial Year (EOFY) tax planning to the very last minute, creating even more stress. That’s why we’ve put together some small business tax planning tips to ease the burden and ensure you’re prepared well in advance of financial year-end.
Do’s
Ensure year round recordkeeping
Recordkeeping is a year round ‘do’ and can make all the difference come tax time. Submit each transaction into your accounting system and separate personal from business items. The more you keep on top of things throughout the year, the less you’ll need to prepare in the immediate leadup to EOFY. Similarly, if you’re practicing optimal recordkeeping, you’ll find it becomes easier each year. This is due to familiarisation as well as tech improvements.
Using intuitive accounting software like Xero, and cloud folders like Fileshare will increase efficiencies and free up time for you to spend on improving your product or service, speaking with customers and strategising.
These programs also enable document sharing with your accountants and other parties so that changes can be made in real time and document control is maintained.
Which introduces our next tip…
Invest in software training
Due to time constraints, small business owners aren’t always across the full capacity of their accounting package. While the constant evolution of accounting software has simplified the bookkeeping task for small business owners, being unable to use the software and/or take advantage of all its functions can create inefficiencies.
Set some time aside each year for training and assess whether your accounting package is right for you.
Write off expenses to maximise tax deductions
To reduce your tax liability and maximise deductions at tax time, it’s important to review your debtors, inventories and fixed assets, and accordingly write-off any:
- debts that are not recoverable
- stocks that have become obsolete, and
- assets no longer able to generate revenue.
Many expenses can be written off if they have a legitimate purpose within the business. Commercial rent, equipment and business travel are all able to be written off.
There is also the small business $20,000 instant asset write off to consider for 2024 (subject to your business qualifying).
- To be eligible, your business must have an aggregated turnover of less than $10 million. It should be noted that this support for small business was announced in the May 2023 Federal Budget, however the measure is not yet law.
Year end planning
Make sure you take the time to forecast your likely profits and taxes that will be applicable for the year ending. Ensure that you are putting aside the cash to pay any taxes remaining and considering any additional deductions you can incur prior to year end to keep the income down where possible.
Don’ts
Don’t overlook key tax due dates
Due to heavy workloads and competing priorities, small business owners sometimes struggle to prioritise their tax obligations. However, it’s highly important to prioritise these obligations or you could be hit with ATO penalties and interest. Non-compliance can also flag you with the ATO for a more detailed review or audit.
Contact a William Buck advisor or your chartered accountant to understand your tax obligations and prioritise key due dates. Advisers should be able to assist with entering an instalment arrangement with the ATO (if required).
Don’t exercise inadequate maintenance of financial records
As already noted, it’s important to keep up with your recordkeeping year round. But it’s also important to do so correctly. Proper recordkeeping provides an accurate and reliable financial position of a business, enabling the business owner to determine how it’s performing and identifying opportunities to improve. Consider the following:
- Lock all accounts relating to the financial year so that date remains accurate, ensuring easy transition into the new financial year, and
- Create a separate copy of the accounts and back it up (print key reports like P&L, Balance Sheet and general ledger listing for the financial year and store them securely).
Don’t ignore the importance of investing in expert assistance
With cost-of-living pressure and interest rates high, we’re all looking at ways to minimise our expenses. But cutting costs on advisory services is highly inadvisable. Simply do not make an important business decision without consulting a professional because this could result in missed opportunities, non-compliance, a high tax bill or increased commercial risk.
Do not overdraw!
Finally, and this is a big one, if you have a company and you take money out of the business, make sure the net position of funds introduced less any funds you withdrew is not overdrawn.
If you have taken money out of the company, work with your advisors prior to year-end to determine whether the amount represents the following:
- Salary and wages (report this on your Business Activity Statement)
- Dividend (Dividend resolutions and statements to be prepared)
- Formal loan agreement in place to meet the Division 7A requirements including the required term and ATO interest rates.
If you do not get the treatment correct, you may end up with a deemed dividend that will usually be a poor outcome for the company and yourself.
For more information on any of the above or assistance preparing your tax, contact your local William Buck advisor.
