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June 22, 2018

EOFY - The Risks of Spending Money to Reduce Business Tax

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Peter Hetherington
EOFY Spending Tax Deductions

When EOFY spending isn’t all it’s cracked up to be – The hidden risks of spending money on business tax deductions. Check out why you shouldn’t be jumping in too quickly with EOFY offers without considering if they’re right for your business.

EOFY – The Risks Of Spending Money To Reduce Business Tax

As each financial year draws to a close, the marketplace gets louder and louder with offers that are designed to get you to spend money before June 30. And there’s no doubt the promise of tax deductions and tax offsets can be appealing to many business owners. But is it the right decision for your business?

Here are a few things to consider before jumping in too quickly with EOFY spending.

Does your business make a profit?

Are you making a profit in your business? Tax deductions and offsets are only worthwhile if you’re expecting a tax liability at the end of the year. So, if your business makes a loss and you start spending to take advantage of deductions, this will only serve to increase the size of your loss with no corresponding offset.

Having a clear picture of your current business position will help to determine whether bringing forward a business purchase to take advantage of tax deductions is right for you.

Stop! Will your spending cause cash flow issues?

There’s no point spending money for a tax deduction if it’s going to put your business under pressure to meet its ongoing expenses. This is why it’s important to be aware of your business’ financial position and plan for these outgoings. With regular cashflow planning with your accountant – you’ll know exactly where you stand and what’s needed in your business long before the EOFY frenzy kicks in. 

How to Make the Most out of Your Deductions

1. Know the Rules

Taxation can be confusing. Rules change depending on the industry you operate in or even the size of your business. By knowing the rules, you can ensure you’re making the right decisions and maximising your claims at tax time. We make it our business to know the rules that affect yours. Speak to us and we’ll make sure you know which deductions are right for your business. Our planning process also considers future deductions or offsets that may be relevant to your business goals and growth.

2. Keep Accurate Records

One sure fire way to miss out on tax deductions is forgetting the paperwork. Keeping records is not only beneficial for your business but also required by law. By keeping accurate records such as receipts and invoices, you can make sure that everything you’re entitled to claim can be supported by the correct documentation.

3. The Bing One. The 20K instate asset write-off. Is your business eligible?

We couldn’t discuss tax deductions and offsets without talking about the ATO’s $20,000 instant asset write-off. The instant asset write-off is part of the government’s simplified depreciation rules and allows you to claim an immediate deduction on eligible assets purchased for your business. The new or second-hand asset must cost less than $20,000 and be installed or ready to use in your business this financial year. If the asset is used for business and personal use you can only deduct the portion that can be attributed to your business.

Originally limited to businesses with turnover less than $2 million, there has been recent changes to the small business rules which means your business could still be eligible with a turnover up to $10 million.

At this stage, the scheme is due to end on 30 June 2018. An extension of the legislation has been included in this year’s budget, however it isn’t yet law.

There are many areas of taxation legislation that favour small business. But it doesn’t mean that all of them will be right for you. Having a clear understanding of your current business position and vision will help to determine which business tax incentives are beneficial for your business.

Don’t fall for the EOFY marketing. Prior planning is the key to making the right taxation decisions for your business. Speak with a Modoras business advisory expert and see how we can help you.

IMPORTANT INFORMATION: This blog has been prepared by Modoras Accounting (QLD) Pty. Ltd. ABN 81 601 145 215. The information and opinions contained in this blog is general information only and is not intended to represent specific personal advice (Accounting, taxation, financial, insurance or credit). No individuals’ personal circumstances have been taken into consideration for the preparation of this material. The information and opinions herein do not constitute any recommendation to purchase, sell or hold any particular financial product. Modoras Accounting (QLD) Pty. Ltd. recommends that no financial product or financial service be acquired or disposed of or financial strategy adopted without you first obtaining professional personal financial advice suitable and appropriate to your own personal needs, objectives, goals and circumstances. Information, forecasts and opinions contained in this blog can change without notice. Modoras Accounting (QLD) Pty. Ltd. does not guarantee the accuracy of the information at any particular time. Although care has been exercised in compiling the information contained within, Modoras Accounting (QLD) Pty. Ltd. does not warrant that the articles within are free from errors, inaccuracies or omissions. To the extent permissible by law, neither Modoras Accounting (QLD) Pty. Ltd. nor its employees, representatives or agents (including associated and affiliated companies) accept liability for loss or damages incurred as a result of a person acting in reliance of this publication. Liability limited by a scheme approved under Professional Standards Legislation.

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