- How much planning do you put into your taxes? Do you know what will help you reduce your business taxes?
- Preparation is key. From income deferrals and income in advance, to superannuation and bad debts. There's a lot to know!
- Keep reading to get 9 tax planning tips that will make preparing your end of year financials much less stressful.
Tax planning season is fast approaching! If you have a small business and you want to decrease the taxes you pay now and in the next financial year, you need to meet with your accountant and plan for it.
Tax Planning Tips for Small Businesses
Here is a list of components your business should consider when starting your tax planning:
- Income Deferral
- Income in Advance
- Wages or Dividend
- Asset Disposals
- Bonuses/Directors Fees
- Bad Debts
- Company Loans to Shareholders
- Appropriate Structuring
1. Income Deferral
Where cash flow allows, consider the deferral of income until after the 1st of July. If operating on a cash basis, avoid the receipt of cash until after financial year end and where reporting on an accrual basis, consider holding back the creation of invoices until after the 30th of June.
2. Income in Advance
Where you have received income that relates in part or in full to services or goods you have not provided prior to the 30th of June, note down that amount so that it can be taken up as income received in advance. This will defer the recognition of the income until the next financial year and could possibly defer you thousands of dollars in taxes.
3. Wages or Dividend
In certain circumstances, it may be beneficial for a business owner to receive fully franked dividends from the company rather than wages. In particular, a dividend may be preferred where the company is in a break-even or loss situation.
4. Asset Disposals
Consider deferring the disposal of assets that will generate a capital gain until after the 30th of June. Where there are some assets with unrealised capital losses associated with them, consider selling those assets before selling assets with unrealised capital gains attached to them. This will allow the capital loss to be used to offset the capital gain.
Ensure superannuation contributions are paid into superannuation funds prior to the 30th of June to ensure a tax deduction for your business in the current year. The maximum superannuation amount that can be claimed for an individual is $25,000. Be very careful not to go over this amount as the penalties can be quite severe.
6. Bonuses/Directors Fees
Bonuses/Directors Fees that have been incurred and committed to by the business prior to the 30th of June (and are not subject to discretion) may be claimed as a tax deduction by the business.
7. Bad Debts
Analyze your list of debtors prior to the 30th of June to identify those debtors you consider unlikely to be collected. In order to claim a tax deduction for these bad debtors, you need to physically write them off before the 30th of June.
8. Company Loans to Shareholders
Company loans to shareholders (and their associates) can be deemed to be the payment of an unfranked dividend. These rules also extend to:
- Trusts where there has been a loan to a shareholder and the trust owes money to a company;
- Distributions a trust makes to a company, which are not paid.
These loans either need to be repaid or documented in a loan agreement to avoid the application of Division 7A rules.
9. Appropriate Structuring
One of the most effective and underrated tax planning tools is to ensure that your business operations are correctly structured through the use of companies, discretionary trusts and individual beneficiaries.
The ability to use Self Managed Superannuation Funds is also an option that has exploded recently in popularity. The tax savings of all of these structures can be quite powerful.
Got a question about how to implement these savings or how they work? Send me a message or post a comment.
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