Ultimate guide on tax planning for small business

A small business is primarily defined as one with an annual turnover of less than $2 million; although there is a chance that this threshold might increase to 10 million, nothing has been made official yet. The small business sector is the biggest employer of a country and has often been described as the engine room of the economy.
A recent research by COSBOA, Council of Small Business Organization of Australia, has shown that small businesses generate about 5.1 million jobs in Australia. The Tax Office states that there are over three million small businesses in the Australian sub-continent, which roughly represents 96% of all businesses. As trusted small business accountants and advisors they should know your business from the ground up.

But, for many small businesses, the tax is one of the most challenging areas of running a sound business. The reason is the complicated tax system that can lead to a lot of problems. But, there is a way to avoid all these issues. Good planning can help small businesses identify where they can save money that can be reinvested in the business. But, you need to plan carefully while following the rules and regulations.

The start of the New Year is good opportunities to save your tax money, simply by following the methods below:

Start planning on the next year’s taxes

Putting off tax returns and accounts on the last priority can cause a lot of panic and stress. It can also cause a lot of lost opportunities and mistakes to save money. Most cases where the tax office refuses an expense claim are because it has not been evidenced properly.
To avoid all these problems to keep your accounting books updated on a regular basis. This step will make your work more secure and efficient. The Australian Tax Law requires you to keep a five-year record of asset purchases, list of creditors and debtors, vehicle records, employee records (wages, contracts, etc.), bank statement, credit card statement, expense invoices, sales receipt, etc.

Charitable donations are tax-deductible

Every donation that a small business makes over $2 to a registered charity is tax-deductible. Donating to charity is great, especially if you know that the amount you donate is claimable on your tax returns. After you make a donation, you need to keep the receipt in your tax receipt folders. During the tax time, simply add up those receipts and enter the total into the charity section of your tax return.
Just to clear some facts up, the donations do not come back in your tax refund. The amount is just subtracted from your taxable income, allowing you to hold a certain percentage of your income back.

Claim everything you can as a tax deduction

On a more general note, claim everything that you spend money on and relate to earning your income. Even if you purchase an inventory that is partly for your personal use and for work, you can claim the work-related part as a tax deduction.

Get in touch with a tax agent

Getting in touch with a tax agent will not only save you time but will also improve your net payable or tax refund. This is the reason why 74% of the Australian tax return is lodged with a tax agent. Most of these tax agents constantly stay updated with changes in tax legislation and are experts in the taxing system.
Tax is a complicated subject and these agents will find out small mistakes that are often ignored by businesses. If these mistakes are left unchecked, it can cause an Australian Tax Office audit or reassessment. The costs of these agents are very low and services include unlimited advice and support by chat or phone with qualified accountants.
Investment affects your tax
Making an investment can help you reduce your tax considerably, depending on your financial circumstances. But, this is not a case for everyone alike. Therefore, before you make an investment, it is a good idea to speak to a financial expert who can advise you if a certain investment will suit you or not.
It is very important to remember that an investment should benefit you now and in the long run – it is of no use if you make a small investment to save a small amount of tax and end up losing your original capital as well in the future.

Do the year-end planning

Planning taxes is a year-long activity and you can save a dramatic amount of revenue by taking appropriate actions before the end of the fiscal year. One of these strategies is to purchase fixed assets and claim a portion of the depreciation immediately. It is of utmost importance that you re-evaluate your assets on the accounting books. This will lower the net profit as the depreciation on the asset increases.
Adjusting finance between business partners
If you have a business partner, you can adjust the finances between yourself in such a way that you can optimize your circumstances. For example, if a married couple is sharing savings on a short-term account and earning interest, it will be a good idea to invest that money in the name of the lowest income earner, since they will be paying the least amount of tax on the earned interest on that saving.
Paying off the mortgage to reduce tax
Generally, you are taxed on the basis of your savings. Therefore if you save a lot of money, it is possible you might face a heavy tax bill at the end of the year. Instead of saving, focus on paying off your mortgage.
If you a planning to buy your own home, you can shift the savings towards your home loan instead. This way, you will be able to pay down the mortgage and will no longer be taxed on that sum of money. It is like killing two birds with the same stone.

Final thoughts

Small businesses can easily reduce the amount of tax if they take advantage of opportunities presented to them. It is entirely up to you and your tax advisor to discover new ways to lower taxes on your small business. Since there are many new taxation rules and regulations coming up, making moves now can potentially save you a lot of money and revenue.

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