In 2021 Tax Tips

Essential Taxation Tips For Small Businesses

Starting and running a small business can be exciting and challenging at the same time. So while there are many things to think about, tax planning should be one of them.

There are several essential taxation tips that small businesses should keep in mind when filing their taxes. For example, failing to take certain deductions or account for specific income can lead to an audit, so it’s important to be aware of the rules. 

This blog post will outline some of the most important tips to help small businesses file their taxes efficiently and avoid any unwanted complications. So read on to learn more!

Every small business is responsible for understanding and abiding by applicable taxation laws. This can be a daunting task, but it doesn’t have to be overwhelming with the right information. Here are some essential tips to help you get started. 

First, make sure you know the different types of taxes that may apply to your business. There are federal, state, and local taxes and payroll taxes, income taxes, and sales taxes. 

Familiarise yourself with the deadlines for filing and paying your taxes, and be sure to keep track of all your expenses so you can accurately calculate your taxable income. If you need assistance navigating the tax code, many resources are available online or through professional accounting firms.

As a small business owner, you have a lot on your plate. You’re responsible for all aspects of your business, from sales and marketing to accounting and taxes. While tax time might not be your favourite time of year, it’s important to make sure you’re doing everything correctly to avoid any penalties from the ATO. Here are some essential tips to help you file your taxes successfully this year. 

If you’re a small business owner, it’s important to understand taxation basics. Here are some essential tips to help you stay on top of your tax obligations. First, make sure you keep accurate records of your income and expenses. 

This will make preparing your tax return much easier. Secondly, be aware of the different types of taxes that may apply to your business. For example, you may need to pay income tax, GST or payroll tax. 

Finally, seek professional advice if you’re unsure how to navigate the taxation process. By following these tips, you can ensure that your small business complies with all applicable tax laws.

Do you feel overwhelmed every time you think about your taxes? Taxation can be confusing, but it’s important to understand the basics so that you can make the most of your tax deductions. 

This blog post will provide some essential taxation tips for small businesses. We’ll cover topics such as self-employment taxes, estimated taxes, and deductions.

Failing to file and pay taxes properly can result in costly penalties and interest fees, so it’s essential to understand taxation basics and take steps to stay compliant. This blog post will provide some helpful tips on taxation for small businesses

We’ll cover topics such as income tax, self-employment tax, sales tax, and more. So if you’re looking for information on how to file your small business taxes, you’ve come to the right place! Stay tuned for our next post, where we’ll provide more in-depth information on specific areas of small business taxation. 

Let’s get started!

Reduce Your Reliance On External Debt

To reduce reliance on external finance, businesses should focus on increasing the productivity of existing assets and employees. Improving cash flow can also free up money to fund purchases or investments without seeking external finance, or it can pay down debt.

These activities can help improve cash flow:

  • follow up on late and outstanding payments from your clients and customers
  • prepare regular cash flow forecasts
  • prioritise your marketing to focus on products and services that can be turned into cash quickly
  • make full use of your suppliers’ payment terms, but do not pay late
  • reduce stock levels by replacing the slow-moving or obsolete stock with high turnover stock
  • sell any unnecessary assets.

Improve Productivity

Businesses must operate efficiently and effectively to be successful.

Here are some ways to improve productivity:

  • collect business performance data and compare it to previous performance, industry benchmarks and the strategic goals of your business
  • identify key drivers of your business and set goals for these drivers
  • regularly evaluate the performance of key drivers against your goals and identify areas for improvement, risk and trends. Clear presentation, such as dashboard reporting, helps to understand this data.
  • implement strategies to monitor the effectiveness and adjust the strategy when necessary.

Review Cost Structures To Find Savings

If a business cannot bring costs under control or pass increased costs onto customers, then both cash flow and profitability are reduced. This can impact the future viability of your business.

Some ways to find savings include:

  • reviewing costs under your control. Do this strategically to ensure you don’t need to reverse any cost-cutting measures in the future.
  • asking suppliers for discounts or changing how and when they deliver stock. One benefit of this could be a reduction in warehousing costs if suppliers can provide stock on consignment or supply on a just in time basis.
  • comparing your cost structures with other businesses in your industry and past results to identify areas for improvement.

Adopt Appropriate Risk Management Strategies

Uncertain times expose your business to risks that could threaten its viability. Develop appropriate risk management strategies to address the following issues:

  • relying too heavily on a small number of large customers
  • relying too heavily on one supplier
  • relying too heavily on one type or source of finance
  • selling on credit without appropriate checks and not following up late payments
  • fraud.

Review Your Business Plan

When business conditions change, it’s good practice to revisit and amend your business plan and budgets to reflect the current circumstances.

Some recommended actions include:

  • reviewing the assumptions underpinning your business plan, and if they have changed, then update your plan accordingly
  • evaluating the performance of your business and incorporate strategies to improve it
  • reflecting your amended business plan in budgets and forecasts.

Even during economic uncertainty, opportunities will emerge for your business to grow. If these opportunities are consistent with your strategy and can be properly funded, you should investigate them fully. You may also need to create opportunities to seek out new markets or clients.

To help you manage through the economic uncertainty and position your business for growth, we recommend seeking professional advice from your accountant.

Claiming A Tax Deduction For Expenses For A Home-Based Business

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If you operate some or all of your business from your home, you may be able to claim tax deductions for home-based business expenses in these categories:

  • occupancy expenses (such as mortgage interest or rent, council rates, land taxes, house insurance premiums)
  • running expenses (such as electricity, phone, decline in value of plant and equipment, cost of repairs to furniture and furnishings, cleaning)
  • the expenses of motor vehicle trip between your home and other places, if the travel is for business purposes.

When you sell your home, you may have to pay CGT.

It’s important to keep the right records to work out your deductions or CGT.

If you’re entitled to goods and services tax (GST) input tax credits, you must claim your deduction in your income tax return at the GST exclusive amount.

What A Home-Based Business Is

A home-based business is one where your home is also your principal place of business – that is, you run your business at or from home and have a room or space set aside exclusively for business activities.

A home-based business can be run:

  • at home – that is, you do most of the work at your home. An example is a dressmaker who does all their work at home, with clients coming to their home for fittings.
  • home – that is, your business doesn’t own or rent separate premises. An example is an electrician or lineman who does all their work on clients’ premises but does all their record-keeping and stores all their tools and supplies (e.g. the electrician’s multimeter) at home.

If your home is not your principal (or main) place of business, but you do some work from home, you may still be able to claim a deduction for some of your expenses relating to the area you use.

Tax Deductions And Write-Offs For Your Small Business

1. Claiming the instant business asset write-off

This is a rule that may allow you to claim eligible business assets, like vehicles, machinery and equipment in the year of expenditure.

If your business meets the eligibility tests, you may be able to claim asset purchases in your tax return for 2021. This is provided they are first used or installed and ready for use within the periods required by the ATO.

There may be time to make purchases for your business and claim the eligible amount against your income in that year. However, not every purchase or expenditure may qualify, and the rules are complex, so you’ll need to seek your own independent taxation advice before buying the asset.

2. Claiming depreciation of business assets

Tax deductions are generally not available immediately (except in special conditions like the instant asset write-off – see above.) Rather, the asset’s cost is claimed over time, reflecting its decline in value. 

This is commonly referred to as tax depreciation. Tax depreciation is complex and different rules can apply, depending on the type of asset and its use. In addition, certain small business entities may also elect to use the simplified depreciation rules to work out their tax depreciation claim.

3. Prepaid expenses

Running your own business can be expensive, but you may be able to claim some running expenses as tax deductions – including ones you pay for ahead of time. 

Prepaying some expenses before 30 June can increase your allowable deductions for the financial year they are paid. 

Eligible expenses include a service period of 12 months or less, for example, annual policies, utility bills or professional subscriptions. Keep in mind that if you claim them this year, you won’t be able to claim them next year, meaning you may have more tax to pay next year.

4. Business account and loan expenses

It would be best to consider whether you can claim the fees and interest from your business accounts and loans around tax time.

5. Deductions for personal super contributions

If you’re aged under 751, you may be able to claim a tax deduction for personal super contributions made to an eligible super fund. 

Those aged 67 and 74 need to meet the work test to contribute, which means you need to be employed for at least 40 hours over 30 consecutive days during the financial year.

From 1 July 2019, if you are aged 67 to 74 (measured at the time of the contribution), you may be able to continue making voluntary contributions for a further 12 months from the end of the financial year in which you last met the required work test, due to the work test exemption. 

To qualify to make contributions under the work test exemption, your total superannuation balance (just before the financial year of contribution) must be less than $300,000. Once you have used the work test exemption for a financial year, it cannot be used again in the future.

When claiming a personal superannuation deduction for the financial year, it’s important to remember that the combined total of your superannuation guarantee payments, salary sacrificed amounts, and your personal tax-deductible contributions do not exceed $25,000 in a financial year or extra tax will apply.

To make a personal tax-deductible contribution, you need to submit a valid ‘Notice of intent to claim or vary a deduction for personal super contributions’ form to your super fund within the prescribed time limits and receive an acknowledgment for a valid notice from the fund in writing.

6. Other deductions

If you have been recently working at home due to the coronavirus, you may be entitled to claim tax deductions for expenses related to generating your income. 

There are several criteria to consider before claiming an amount in your tax return; for instance, you should consider whether you can claim the temporary ATO approved “shortcut method” (of 80 cents per hour for all additional running expenses) for the period 1 July 2020 until 30 June 2021. 

Other calculation methods may also be acceptable and more appropriate to your circumstances. However, you should consider which method is best for you and the criteria required to claim a deduction. Further information is available on the ATO website.

You pay many other expenses to keep your business running or help you earn business income, which may be tax-deductible. You can find more information about claimable deductions on the ATO website or by speaking to an accountant or tax adviser.

Preparing Your Business Activity Statement

Once you’ve registered your business for goods and services tax (GST), you’ll need to complete your business activity statement (BAS) monthly, quarterly, or annually to meet your tax obligations.

Here are some ways to help you complete your BAS correctly and on time.

1. Prepare your information

Make sure your numbers are spot-on to help you report your BAS correctly the first time.

  • Double-check you’ve included all your transactions
  • Make sure they’re all business expenses
  • Ensure your sales and expenses are for the same dates as your BAS reporting period
  • If you’re using accounting software, make sure you’ve coded items correctly

2. Complete your BAS

Once you have your numbers ready, you can complete your BAS online or using a paper form. The Australian Tax Office (ATO) has detailed instructions to help you complete the GST section of your BAS.

Some things to remember are to:

  • Enter whole dollars in the boxes
  • Leave boxes blank if they don’t apply to you
  • You’ll only be able to enter positive values in your BAS form

3. Lodge and pay on time

Submit and pay your completed BAS by the due date to avoid paying any interest or penalties. There are several ways to do both, so choose what suits you – for instance, you can submit your BAS online, by mail or through a registered tax or BAS agent. The ATO website provides more detail on each of these options. 

4. Keep your records

Once you’re done with your BAS, you’ll need to keep a copy of it and the supporting documents for several years to meet the ATO’s record-keeping requirements.

5. Get help

If you have any questions about your BAS, check out the ATO website or use one ATO contact service, such as live chat.

Tips For Small Business – From Small Business

calculator financial chart financial

1. Invest in an eCommerce platform with integration options

Your website should provide a great experience for your customers and make it easy for you to run your business. 

Artisanale Chocolate and online candle company, The Scent Lab, say they chose a website platform that easily integrates with MyPost Business through a plugin. And that saves them hours on exporting orders and printing labels each week.

“MyPost Business is just so efficient. It saves us at least an hour every day,” Adam Kerrins from The Scent Lab says.

2. Tune in to what customers say

Customer feedback can be a fantastic source of inspiration for your future business direction – from new product ideas to ways you can remove friction in processes.

“Listen to your customers; they are a great source of new ideas,” says Rashid Roumani, co-founder at barista-quality coffee pod retailer Pod Co. His chai latte and intense flavours came directly from customer requests.

3. Don’t compete on price

It’s important to stand behind the quality of your product. “Price your products fairly, and don’t compete on price, or you’ll end up on a major downward spiral,” says Tony from iconic ugg boot manufacturer Mortels Sheepskin Factory.

Rather than discounting, which can affect perceptions of the quality of your product, think about how you can pass on My Post Business savings1 by offering free shipping or express upgrades to customers.

4. Work with a delivery partner you can depend on

“It’s so important to work with a delivery partner you can trust. You need to remove any friction for your customers with a seamless service. Tracking notifications2 and parcel redirection3 with MyPost Business helps us do that,” Rashid from Pod Co says.

Adam from The Scent Lab thinks of Australia Post as an extension of his customer service. “One bad experience could damage your brand, but partnering with Australia Post helps prevent that,” he says.

5. Think about packaging

TABOO co-founder Eloise Hall says talking to their Australia Post representative has helped them learn how to make packaging more cost-effective. 

“For example, we still make our own recycled boxes for product delivery,” Eloise says. That may be environmentally sustainable, but as order volumes grow, it’s just not scalable.

“We’re working with the team at Australia Post to find a sustainable, branded packaging alternative,” she says.

6. Create a community

Social media and eCommerce can work together to amplify your online presence. For example, with over 200,000 Instagram followers, Steph Pase from Steph Pase Planners says her strong community is her best sales tool.

“I always find that when our first planners go out, customers show their friends and family, and then we get another wave of orders,” she says. “We support that with our own Facebook community, where everyone can share what they’re doing that week – ideas for their challenges and goals.”

7. Be ready for global interest

Building an online business means you have the opportunity to take your products to the world. But you need some systems in place first.

Steph Pase ships her Aussie planners to New Zealand, the US, the UK, and even Paris and says it was easy to manage in the same system. She decided to upgrade all her international parcels to express shipping for Christmas. “It was super easy to do that with Australia Post,” Steph notes.

Pod Co’s market is also growing in New Zealand. “When we launched our chai latte pod, we started getting enquiries from New Zealand. And we realised how easy it was to make that happen with MyPost Business,” co-founder Ammar Roumani says.

8. Use data to test and learn

Every business and every market is different so keep experimenting on a small scale to avoid overinvesting. Rebecca says she’s still learning what works for Artisanale Chocolate’s social media marketing.

“We’re still tiny compared to other chocolate players in the market, so the challenge is always promoting ourselves. There’s so much in the analytics, so when you launch an ad, look at how it performs and use that to shape your next one.”

9. Build a strong relationship with your local Australia Post manager

“Working with our local post office is like having a team of account managers we can ask about anything – they help us make the most of services like eParcel,” says Pod Co’s Ammar.

“Have a chat when they come in to pick up your parcels,” Stephanie from Mortels suggests. “They can help you find the best platform and processes – and the best deal – for your business.”

10. Dream big and take calculated risks

“Hold onto a sense of healthy naivety – dream big and follow your passions, because you’ll quickly learn if there’s a market for your idea.” TABOO co-founder Eloise says.

Adam from The Scent Lab says he didn’t know anything about running a business when he started, but the risks paid off.

“No one achieves their goals without taking risks. It would be best if you backed yourself, researched, and made an informed decision. Not every single decision will work out, and that’s ok. You learn from it,” he says.

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