Most SMBs have the discipline of quarterly business activity statement compliance. But many businesses still face the significant task of annual reporting. Whatever the reporting regime, the end of the financial year signals a vast array of deduction opportunities as well as potential threats to cash flow.
It all starts with making an early appointment with an accountant, giving you time to review your business results before the rush of 30 June.
Along with this, here are eight tips to keep in mind when preparing for tax time.
1. Be certain to get Super deductions. Even though superannuation doesn’t have to be paid until 28 July, paying employee and personal contributions by 30 June will allow time for processing delays and getting valuable deductions this year.
Note: According to The Australian Tax Office (ATO), superannuation is only deductible when paid. That means that it must be cleared through your bank account, received and recorded by the employee’s superannuation fund prior to that date. Be prepared; pay early.
2. Pay expenses in advance. If your cash flow allows it, consider paying recurring expenses in advance. Things like insurances, interest, rent, conference fees, subscriptions, travel costs can mean an immediate deduction.
Note: The expense may not be eligible if it covers more than 12 months.
3. Claim deductions now for future expenses. You may be entitled to claim an immediate deduction for expenses you are committed to, goods or services that have been received or work performed – even if won’t happen before year end. This includes salaries and wages, staff bonuses and directors’ fees.
4. Spend up! But only if you need to. If you need to replace low-cost equipment or purchase new tools, computers or other equipment soon, consider purchasing them before 30 June to get the full tax benefit now.
Note: You may only receive a $300 benefit for every $1,000 spent. Always check the ATO website for the latest updates.
5. Write off bad debts. To deduct bad debts, the ATO requires you to write it off while it still exists, prior to 30 June. Review your accounts receivable with your accountant or bookkeeper to determine whether a deduction qualifies before the deadline.
6. Check your assets and inventory. Consider writing down or writing off obsolete stock. Then think about revaluing the remaining stock using one of three methods: cost price, market selling value or replacement value. Choose the method that produces the lowest stock value; if the value of closing stock is less than the value of your opening stock, you may receive a deduction. When the reverse occurs, you may generate income.
7. Repay any borrowings. If you, a family member or an associate have borrowed money from your business, you should ensure that the company charges the appropriate interest and consider making the minimum required repayments before the end of the financial year.
Note: Failure to do so may result in the entire amount of the loan being treated as taxable income, causing you to be taxed personally at rates of up to 46.5 per cent.
8. Pay on time; don’t overclaim. Unpaid taxes and fraudulent claims are serious business. The Australian Tax Office is actively looking to recover $17.7 billion, with 60 per cent of that – some $10.6 billion – owed by small businesses. It’s critical to submit accurate returns and pay on time.
Note: Fines are calculated at a higher rate than a loan and interest on accumulating tax debt is not deductible
Get ahead with technology
The growing popularity of cloud-based services simplifies paying taxes for small business owners and accountants alike. Indeed, year-end compliance is now much easier with the advent of cloud-based accounting software that’s been designed specifically for SMBs - like Intuit QuickBooks.
Throughout the year, transactions are seamlessly exported from bank and PayPal accounts, payroll is automatically calculated and integrated, all invoicing elements are captured, and debtors and creditors are a breeze to track. All of this means you know where you stand financially – not just at year end but at any time – saving you time when it comes to doing your taxes and giving you the ability spend more time on building your business.
*You should always consult with a qualified accountant and/or the Australian Tax Office if you have questions.
In the meantime, are you keen to get prepared for tax time? Or are you a last minute type of person?