How can I reduce my business tax bill?
I am new to tax savings. Can anyone guide me on how to save tax as an individual and small business owner?
It would help to know what business you are in and its size/turnover. Here's a few tips to get your mind ticking:
1. Keep your personal and business expenses separate. I recommend separate bank accounts and credit cards etc. Mix them all up, it gets confusing & more time consuming for you or more costly accountant to sort out. You can claim bank charges, maintenance fees if they relate to this business income or salary&wages.
2. Keep good tax records, write on your receipts what the purpose of the expense of your business/deductible expense. Always ask for a receipt when you buy or use a service that is business/income related (don't throw them out!). A good cloud accounting software solution such as Xero or Saasu may be a good way to stay organised & keep your records up to date. You pay a nominal monthly rental and can claim its cost as a deduction. There is also good apps such as Expensify that take a picture of your receipts and organise them for you.
3. Review at your business structure. If you are small, then a sole trader may be more cost effective but it puts your personal assets at risk if it goes belly up. if you have a decent turnover a company may a good way to protect your business assets and keep them separate from personal. But there are costs of maintaining a company.
4. If you work from home, then there may home office expenses you could claim (pro rata from personal space) and office equipment you can depreciate. Motor vehicle expenses is another one if you use your car to run your business.
5. There are a bunch of small business concessions available for turnover less than $2 million, offered by the Tax Office. Depends on if you can follow them but you may need to get your accountant to look at their applicability for you. Check out the ATO website:
Anyway, as the guys have said, there are too many unknowns to be specific to your tax situation and if you saw how many volumes of tax legislation there are, you would run for your life. Just be honest, stay clean & transparent and get a good accountant/tax advisor and you have nothing to worry about and they can set up good practices for you to maximise your tax savings.
Agree the question is too broad, however, in terms of savings for retirement, there are various tax benefits in superannuation available to us, depends our circumstances. Without knowing your circumstances, it is not possible to say whether or not you’re eligible or entitled to these benefits. <?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />
The following information is of a general nature and doesn’t constitute financial advice. Before you act on it, you should seek advice from appropriately qualified professionals.
Here are some tax incentives available in superannuation:
1. Low Income Superannuation Contribution: Superannuation guarantee (SG) contributions are taxed at 15% (contributions tax). If you’re an employee receiving SG contributions from your employer and your income is less than $37Kpa, you’ll receive a tax rebate of up to $500 from the ATO paid to your superannuation fund. This is basically a refund of the 15% contributions tax.
2. Spouse contribution: If your spouse is working and earning less than $13,800pa, you can make a spouse contribution on his/ her behalf, you’ll be entitled to receive a tax rebate of up to $540 from the ATO. For example, if your spouse earns say $10Kpa and you make $3K spouse contribution, you’ll be eligible to claim 18% of the $3K as a rebate, giving you $540 tax benefit.
3. Co-contribution: If you’re earning less than $61,920pa and make personal contributions to superannuation, you may be eligible to receive a co-contribution from the ATO of up to $500pa. If you earn less than $46,920, every $1 you put in superannuation the ATO will give you $0.50, up to the maximum of $500 a year. If your income falls between $46,920 and $61,920, you’ll receive the co-contribution at a sliding scale. For example, if your income is $45K and you put $1000 personal contribution to superannuation, the ATO will also put $500 to your superannuation fund for you.
4. Tax deduction: Self-employed or substantially self-employed people may be able to claim a tax deduction on personal contributions to superannuation. Tax deduction reduces your taxable income; therefore reduces the amount of tax you have to pay.
5. Salary sacrifice: If you’re a high income earner you may be able to salary sacrifice to superannuation and pay less tax. Let’s say you’re on the top marginal tax rate, you can salary sacrifice up to $25K to superannuation and only get taxed at 15% on this amount instead of 46.5% if you receive the amount as an income.
6. Contributions splitting: If you’re planning to retire between 55-59, you can withdraw your superannuation as a lump sum up to the tax-free threshold without having to pay tax. The threshold for the 2013 financial year is $175K. Assuming one spouse has a larger super balance than the other (eg one is over the threshold and one is under), you may be able to take advantage of the two tax-free thresholds by doing a contribution splitting. How it works is each year, if you’re eligible, the spouse with the high account balance can transfer 85% of the concessional contributions (includes SG and salary sacrifice) to the spouse with the lower account balance. This process can be done each year. The idea is to increase one account balance and lower the other in order to take advantage of two tax-free thresholds.
7. Tax free on lump sum withdrawal: Under current legislation, you can receive your superannuation tax-free once you turn 60. If you’re not too desperate for money, try to wait until you’re 60. But in some circumstances you may not have to pay tax at all even if you’re between 55-59 – see point 6 above.
8. Taking superannuation as an income stream (pension): One of the benefits of taking your superannuation as an income stream is that you do not have to pay tax on any investment earnings. Whereas earnings in your superannuation account are taxed at 15%.
Remember, these incentives are only applied to superannuation. As superannuation is a long-term savings for retirement, most of the benefits you receive now are not available until you retire or until you meet one of the conditions of release that allows you to take your super.
As both sides of politics are campaigning to win votes, there have been talks of abolishing some of these incentives in order to fund their promises.
Once again, if you’re considering whether any of these incentives are appropriate for you, you should seek advice from a qualified accountant or financial planner.
Seek professional advice from an accountant.
This area is too complex to get advice over the web.
Totally agree, there are so many variables.
Though there is one thing that you can do immediately - keep good records!
Go to a legal bookstore and browse through the taxation law section. I'll warn you upfront it's not fun but if you read through these books you will save money.
You'll never meet a struggling tax lawyer. Accountants learn how to comply with rules while lawyers learn how to work the rules -- big difference!
The simplest way to reduce your tax bill is to sell less, or just drop your prices.
Personally I love it when my tax bill climbs. The best one you want to see take off is your BAS. As a business owner, my advice is to focus on paying as much GST as possible by selling more or at a higher profit.
That then means this becomes your accountant's problem.
My one warning - many tips on how to reduce tax don't actually help you as a business owner.
- redirecting money into super just ties it up until you have retired. That is an "asset" that is totally tied up for decaded. Not good for business owners.
- "negative gearing" is a euphemism for making a loss and trying to feel good about it. Once again, you have an asset tied up and are waiting for it to appreciate in value.
- company cars are great for the ego, but the best tax saving is to buy a $3,000 bomb not a $50,000 beast.
- tax deductible donations just mean the government has subsidised a bit that you just paid. Great if you are feeling generous, but not actually saving you money.
Check out "Profit First" by Mike Michalowicz.