7 Business Tips for Getting the Most out of Tax Time
With these tax tips for business, you may be able to claim more deductions and reduce your tax bill.
Did you know that Australia has the second-highest tax rate on personal income and business profits, compared to 34 of the leading economies in the world?1
That’s according to the Organisation for Economic Co-operation and Development. It also found that Australia’s government receives 58.8% of its income from taxes. The global average is 34%.
The point is that Australia is one of the world’s most-taxed economies. As a business owner, this may weigh heavily on your cash flow. Finding ways to relieve that tax burden could help you save money and grow your business faster.
That’s where these tax tips for business may help. With these tips, you’ll discover how to do business tax so that you minimise outgoings and maximise savings.
Keep Accurate Records
Remember the Income Tax Offset
Repay Any Money You’ve Borrowed From the Business
Report All of Your Income
Leverage the Instant Asset Write-Off
Get Help From an Accountant
- Keep Accurate RecordsThe maintenance of accurate records ensures your tax returns will be up-to-date and contain fewer mistakes. This reduces the likelihood of the ATO taking a closer look at your taxes.
Maintaining accurate records serves useful purposes for your business, as well. It can help you develop a stronger financial plan and ensure you have a better understanding of your cash flow. It’s also a big time saver. Keeping all of your records in one place and ensuring their accuracy may mean less time spent on compiling your tax returns.
- Remember the Income Tax Offset
If you’re a sole trader, you may be able to offset some of your income tax. This offset applies if you’ve shared some of your business income with a trust or partnership.
You must have an unincorporated business to become eligible for the offset. Your business must also have an income of less than $5 million.
If you meet these conditions, you may be able to offset 8% of your tax payable on your company’s income. This may increase to 16% in the coming years.
- Repay Any Money You’ve Borrowed From the Business
Mixing personal taxes with business taxes is one of the biggest mistakes that small business owners can make. When tax time comes, you may end up with a mess of figures to work through.
This doesn’t mean you can’t borrow money from a business that you’re a shareholder in.
However, it’s often best to repay that loan before tax time comes. If you can’t, it may be best to declare the loan as a dividend and treat it as personal income. This ensures the line between your business and personal taxes doesn’t get blurred.
- Understand Deductions
You may be able to claim deductions for many of your company’s expenses. As long as the expense has a direct impact on your assessable income, you can likely deduct it.
For example, let’s say that you buy a laptop for your business. You may be able to deduct the full price of that laptop from your taxes, assuming it’s only used for business. Many other assets follow the same rules.
However, there are some expenses that you cannot claim. These include the following:
Any private expenses, such as childcare
Any expenses related to income that you generate outside of the business
For example, you may have a personal investment portfolio outside of your business. You cannot claim deductions for any expenses incurred in building that portfolio.
Expenses related to entertainment
The following are some common deductions that you may be able to claim for:
The cost of sponsorship and other marketing activities
Expenses incurred to gain access to financing or borrowed money
Expenses related to business travel
The cost of operating a business vehicle
Some forms of insurance, including worker’s compensation, fire, and public liability
This is not a comprehensive list. It may be best to work with a tax specialist to understand what you can and can’t deduct. Keep accurate records of every purchase you make and allow the professional to determine what you can deduct.
- Report All of Your Income
The ATO lists failure to report all income as one of the three major small business tax issues.
Failure to report all your income could open you up to an audit. This may have a severe impact on your business, especially if the ATO discovers a substantial amount of undeclared income. You may face fines, additional fees, and even jail time for failure to report all of your income.
This is why it’s so important to maintain accurate records. Be honest at all times to avoid the potential for larger problems later on.
- Leverage the Instant Asset Write-Off
Currently a temporary measure, the instant asset write-off could help your business save thousands of dollars.
Here’s how it works.
If you buy an asset for your company, such as a new computer, you can claim an immediate deduction on that asset. This deduction can only relate to the business use of the asset and currently maxes out at $20,000.
This is especially useful for sole traders and small businesses that rely on using a lot of equipment in their work.
- Get Help From an Accountant
“Do I need an accountant?”
This is a common question for small business owners. The answer is likely “Yes,” simply because accountants offer a great deal of expertise that you may not have. They may be able to help you find additional deductions you could make. Plus, a good accountant can spot any errors in your tax returns prior to submitting them. This can save a lot of time and cost in the long run.
Prepare Well to Profit Later
Preparation is the key when it comes to business tax time. Maintain accurate records throughout the year and develop an understanding of the claims that you can make. Furthermore, try to avoid blurring the lines between business and personal taxes. If these become interwoven, you create unneeded complications and the potential for mistakes.
Working with a professional can help you put these tax tips for business into practice. And at Modoras, we’re happy to help you create your business tax plan.
To find out more on how we can assist you at tax time, contact our team today for a obligation free consultation.
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.