Tax planning can be daunting – especially as a small business owner 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 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.
Ensure year-round record-keeping
Record–keeping 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 record–keeping, 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
- 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 are temporary full expensing rules which may (subject to your business qualifying) allow full write off of depreciating assets.
To be eligible, your business must have an aggregated turnover of less than $5 billion or meet an alternative income test.
An eligibly entity can claim its tax return deduction for the business portion cost of:
- Eligible new assets first held, used or installed ready for use between 7.30pm AEDT on 6 October and 30 June 2023.
- Eligible second-hand assets where both the asset was first held, used or installed read for use between 7.30pm AEDT on 6 October and 30 June 2023 and the eligible entity’s aggregated turnover is less than $50 million.
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 record–keeping year-round. But it’s also important to do so correctly. Proper record–keeping 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
We’re all looking at ways to minimise our expenses post pandemic. 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.