Tax time is fast approaching so it is time to start thinking of ways to cut your tax bill. Saving a few dollars here and there goes a long way in a small business so with a bit of smarts and organisation, you can potentially save your business a lot of money.
In April 2010, the Australian Taxation Office announced it was using data matching technology to crackdown on small business' avoiding tax on the back of the global financial crisis. Therefore, it is increasingly important to make sure your tax affairs are in good order. Find out more about the ATO's crackdown on tax avoidance >>
Read on for five top tips to minimise your tax bill:
Be organised and prepare for tax time in order to make the most of the deductions available to you. Make sure your log books (vehicle log books and travel diaries) are in order and you have copies of all required receipts and bank statements. Having your accounting systems in order will make it considerably easier to make the right claims and will also mean you are prepared for an audit.
Similarly, make sure you keep receipts for what might seem to be insignificant deductions. Even a small tax-deduction which might seem trivial can add up to significant amount come the end of the financial year. For example, $20 a week equals more than $1000 over the course of a year. However if you fail to keep track of the $20 transaction, by not keeping receipts or maintaining a paper trail, you can't claim on what is now $1000.
Keep your business and personal tax separate as it could result in a mess come tax time. Even if you're only in the early stages of your business and your personal and business expenses seem to be the same, by tracking your business accounts and record keeping separately it could save a lot of hassle as your business grows.
2. Pay expenses
If it's possible, try to bring your expenses forward so that you pay them in the current financial year. You can effectively prepay next year's expenses which can be particularly beneficial if the income tax rates are different. This way, you can claim the deductions in the current financial year and lower your business' income. The expenses can basically be anything your business needs to buy or pay for - supplies, rent, bills, membership fees, uniforms, shareholder loans, insurance premiums or bonuses.
Another expense which you can look into paying early is interest on investment loans. Depending on your financial institution, you can pay up to 12 months worth of interest in advance allowing you to claim the full deduction in this financial year.
Similarly to paying your expenses before June 30, try to defer incoming payments. Keeping your business income minimal will reduce the tax bill so try to slow the income of revenue towards the end of the financial year. Delay sending invoices to your clients until the next financial year.
4. Take advantage of tax breaks
Investigate the tax concessions you are eligible for if your small business has an annual turnover of less than $2 million. You may be able to pool your assets worth up to $1000 and get a write off or prepay certain expenses like lease payments.
You may also be able to take advantage of capital gains tax (CGT) concessions and so you should be aware of your eligibility to access small business CGT. There are several tests which your business needs to pass to be eligible for small business CGT - the asset test, qualification as a small business and in regards to the ownership structure - however if you pass it is worthwhile looking into what it means for your business.
Make sure you thoroughly investigate any tax breaks you think you may be entitled to as it could be a costly mistake if you misunderstand anything.
5. Deductions
You can claim most things that you use for business purposes so if it is work-related, deduct it. You can claim deductions for up to $300 in work-related expenses without receipts however for anything over this, you need to make sure you can provide the relevant receipt should you be audited. Additionally you can claim up to $150 in eligible laundry claims on top of the $300 no-receipt threshold; education expenses if it relates to your field and; people working from home can also claim for heating, cooling and lighting (for this you will need to keep a diary of hours worked at home for at least four weeks).
Even not work-related expenses can be deducted like fees paid to a tax agent and financial planner, bank fees or interest payments as well as charitable donations or professional fees.
The most important thing you can do for your business in the lead up to tax time is be organised and informed on what applies to your business. If you are not confident with any tax issues make sure you talk to a tax advisor or accountant for clarification before making the claim.
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