With 2019 speeding ahead – and tax time will be upon us, sooner than we think. To make it easier for small business owners to take advantage and maximise their deductions, we’ve compiled a list of five essential tips you need to know to help your lodgement go as smoothly as possible.
1. Keep all of your records
Keeping the correct records is the ‘Golden Rule’ when it comes to tax tips for small businesses. A misplaced receipt or an incorrectly filed invoice could see valuable deductions disappear, so efficient record-keeping is crucial: it can make your life easier both for business management practice, and if you need to reply to any queries the ATO might have.
Australian tax law dictates that you keep records pertaining to all things business-related for five years. The types of things you should be keeping record of are:
● Sales receipts
● Invoices for expenses
● Credit card and bank statements
● Employee records (such as wages, superannuation payments, tax declarations and all contracts)
● Motor vehicle records
● Debtors and creditors lists
● Any purchasing of assets
● Loan documents
Regardless of the way you keep your records, be it electronically or on paper, by streamlining your record-keeping, you won’t have to search high and low to provide required evidence at tax time.
2. Leverage the $30,000 tax write off
The $30,000 instant asset write-off is one of the most generous tax breaks for Australian small and medium sized businesses. It applies to those with an annual turnover of under $50 million, allowing you to claim tax deductions on any purchases under $30,000.
This is the perfect opportunity to upgrade equipment and furniture in a tax-savvy way. BDO Australia suggests you take a strategic approach, by “ensuring that any new spending… does not place pressure on the most important thing in your business – your bottom line,” they advise.
It might be worth considering reviewing your financing arrangements to allow you to take advantage of this write-off, whilst also intelligently restructuring your debt to maximise your business profitability. To determine whether the ability to leverage this advantage applies to you, reach out to our friendly team at Morris Finance.
3. Deduct the right expenses
There is often a lot of conjecture about what is constituted as an appropriate business expense and what isn’t – particularly when it comes to ‘entertaining’.
Essentially, you can claim business-related deductions for most costs you incur in running your business, including staff wages, marketing expenses, and business finance costs. When it comes to entertaining your clients, such as taking them to lunch, the deduction may or may not be allowed depending on the purpose, time of day and location.
Note that if you run your business from home, you may be eligible to claim the business portion of some expenses, including mortgage interest and electricity – though the ATO notes that if you sell your home, capital gains tax (CGT) may be applicable on the business portion.
4. Take care of GST
Don’t wait until end of financial year to get your GST obligations in order, or you may find yourself tackling an unexpected, over-sized GST bill.
The obligations around GST can be quite confusing to l business owners, though the ATO tries to simplify into three different reporting options for Australian businesses:
- Monthly, which applies to those with a GST turnover of $20 million or more
- Quarterly, if your GST turnover is less than $20 million, and
- Annually, if you’re voluntarily registered for GST and your turnover is under $75,000 per annum (or $150,000 if you’re a not-for-profit)
5. Write-off bad debts
Whilst we all hope that our debtors pay in a timely fashion, bad debts are unfortunately part of business. When tax time comes around, it can be helpful to sit down with your accountant and your list of outstanding debtors, to consider whether you think they will pay their invoice.
If it’s not looking likely, you may consider write them off as a bad debt before the end of the financial year, and claim the tax deduction. Just make sure you keep a solid paper trail (which should be easy if you’re keeping proper records!).
These tax tips may help your business gain a financial advantage at the end of financial year. If you’re looking for other opportunities to maximise your business’s profitability, whether it’s through car and equipment financing, capital raising or restructuring your current loans, contact Morris Finance today.