Everyone wants to save on tax. The good news for small business owners, you have more ways to save on taxes than most people. Our checklist shows there are a numbers of simple strategies you can implement to minimise or defer how much tax you will pay this Financial Year.
Depending on your situation, our tax planning process could save you thousands of dollars. That’s cash in your bank account, rather than the Tax Office’s. But, like Christmas Shopping, we recommend you don’t leave tax planning to the last minute. Call or email us as soon as possible so we can make a time to sit down and start planning.
Now … to our checklist:
Defer Income – a simple tip that can defer a lot of tax for you
Sometimes it’s the things you don’t do that save you a bundle.
If your cashflow allows, consider holding off on invoices until 1 July. This will allow you to defer your tax liability to the following financial year and defer tax payable on that income for another year
The big tip here, of course, is to keep in mind your tax bracket for both financial years. You need to be sure you won’t be taxed at a higher rate on the deferred income. We recommend having a budget to manage these months’ income and expenses. We can help you with that.
Claim before spending a cent!
Just because you haven’t paid for something doesn’t mean you can’t claim it. Businesses can get an immediate deduction for certain expenses that have been “incurred” but not paid by 30 June, including:
- Staff bonuses — claim a tax deduction for staff bonuses and commissions that are owed and unpaid at 30 June where the business is “definitely committed” to the expense.
- Directors’ fees — claim a tax deduction for directors’ fees that are “definitely committed” to at 30 June and have passed an appropriate resolution to approve the payment.
- Repairs and maintenance — claim repairs undertaken and billed by 30 June but not paid until the next financial year.
Bring forward payments
Consider bringing forward any expenditure that you will incur after 30 June by asking for the invoice before 30 June (i.e. staff training, insurances, subscriptions, donations etc.)
Consider purchasing consumables (stationery, printing, office and computer supplies) before 30 June. Another way to reduce your tax liability is to make payment for repairs and maintenance of property owned by your business or rental properties before 30 June.
Super deals – Pay the June quarter superannuation
Superannuation if paid on time is deductible when paid. Since you have to pay the 9.5% superannuation by 28 July, bring it forward a month and pay it now and claim the deduction. Why wait a whole year to reduce your tax?
Using all of your superannuation cap
The federal government has made some changes to superannuation. But, putting money into superannuation is one of the best ways to minimize your income tax bill. If maximising your superannuation is part of your retirement plan, then don’t forget to contribute as much as you can into your super fund. Make sure you don’t exceed the super contribution caps. We can guide you as to how much you can contribute each year.
The value of your closing stock directly affects your business profit, the higher your stock value the higher your profit and tax. Makes sure you do a complete stocktake before 30 June. If you find obsolete or out of date stock that your business simply can’t sell, you can write it off before June 30 and get a tax deduction this year.
This will give you a tax deduction equivalent to the value of the asset at the beginning of the financial year
Write-off Bad Debts
Your income tax is payable on any invoices you’ve issued, even if you haven’t been paid. Don’t pay tax on any invoice you know won’t ever get paid. Review the list of those who owe you money and write off those ‘bad debts’ now.
Our Tip – you need to show that you’ve made a genuine attempt to recover the debt. Generally, the debt needs to be over 12 months old. Prepare a document listing each Bad Debt, as evidence that these amounts were actually written off prior to year-end.
Capital Gains Tax (CGT)
Minimising your capital gains tax is often about timing. Ensure the asset has been owned for at least 12 months. If you already have a capital gain, are there any investments making a loss you can sell? Do you qualify for any capital gain rollover relief concessions? Or the Small Business CGT concessions? Again, we can guide you here. CGT is a whole topic on its own, and the potential savings are so great, it is definitely an area in which you should seek our guidance.
Private company loans
If you have borrowed funds from your company we recommend you get in contact with us. You need to have a proper loan agreement in place. We will review your position and ensure that the minimum principal and interest repayments are made by 30 June.
Its important business owners are aware of this requirement as the penalty for non-compliance can result in the entire loan amount being deemed as an unfranked dividend paid and taxed at marginal rates!
A word of warning
These strategies need to be assessed in the context of your business cash flow.
Prepaying expenses, purchasing assets or making a voluntary contribution to your super fund will improve your tax position but could have a detrimental effect on your cash flow. Many people get caught out at this time of the year spending money purely to get a tax dedication.
Don’t forget – any fees paid to your accountant for tax planning can be claimed as a tax deduction. A small investment in tax planning strategies can save your business thousands.