Tax Tips For Small Business
You probably have a lot going on in your life as the owner of a small business. It can be challenging to manage the day-to-day operations of a business while also keeping up with the paperwork that has to be done. Don’t let tax season get you down; here are some ideas to make the process a little less intimidating. But don’t let tax season get you down.
Are you the owner of a small business and trying to reduce the amount of money you owe in taxes this year? If this is the case, you are in luck! In the next blog article, we will provide some tax advice that is tailored specifically to the needs of small enterprises. Therefore, continue reading for some useful tips on how to lower the amount you owe in taxes.
When you are trying to manage your employees, ensure that your clients are satisfied, and make sure that your business is operating properly, it can be challenging to find the time to concentrate on your taxes. However, ignoring your tax obligations can end up costing you a significant amount of money in the long run.
Continue reading this article if you are seeking for some advice on how to make the upcoming tax season a little less stressful. We will go over some of the most important things you need to know in order to submit your taxes in a secure and timely manner. Don’t worry about it if you’re still feeling overwhelmed; we’re here to help!
You, as the owner of a small business, are probably already familiar with the difficulties associated with preparing your tax return. There are, however, ways to make the procedure less difficult and more affordable, despite the fact that it can be intimidating.
In today’s post, we’ll discuss various strategies that can lessen the amount of money you owe in taxes, allowing you to retain more of that cash in your own pocket. Therefore, continue reading for useful information on a variety of topics, including record keeping and deductions. We guarantee that if you put in just a little bit of effort, you’ll be well on your way to filing your taxes like a seasoned professional in no time at all!
When you are trying to manage your staff, keep an eye on your money, and make sure that the quality of your goods or services is up to par, it can be challenging to find the time to concentrate on your taxes.
However, ignoring your tax obligations might result in some serious penalties; therefore, it is essential that you make sure you are taking the appropriate actions to reduce the amount of money you owe in taxes. This blog post will go through some tips for lowering the taxes that your small business must pay. Continue reading if you want to learn more details!
You are accountable for everything, including sales and marketing, as well as accounting and payroll responsibilities. And let’s not forget the day-to-day chores like making items, shipping them out, and providing support to customers. Therefore, it should not come as a surprise that tax season can add even another concern to an already full plate. But don’t stress! The filing of your tax return will be simplified with the help of the following tax tips.
To begin, make it a priority to maintain accurate records throughout the year. This requires you to keep all of your receipts, invoices, bank statements, and credit card statements for a minimum of seven years. Then, in the event that you are ever subject to an audit, you will be thankful that you have them!
In addition to being responsible for the daily operations of your company, you must also monitor your financial situation and confirm that you are making the appropriate tax payments. Thankfully, there are certain tax advice that are tailored exclusively for small businesses that can assist in making the process somewhat simpler. Therefore, if you are seeking for some assistance in this particular area, continue reading for some helpful tips.
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1. What Exactly Is a Small Business?
It is neither the size of a company’s geographic location or the number of its employees that determines whether or not it is considered a small business from the perspective of taxation. To be considered a small business and eligible for the various tax breaks, a company must have a total yearly turnover of less than $10 million in order to qualify.
2. Strict Record Keeping and Expense Tracking for Split Payments
The most important thing for a small business to do is to maintain accurate records of all of its income and expenditures throughout the course of the fiscal year.
The Australian Taxation Office (ATO) mandates that records be kept for a period of five years. These records must cover all business expenses, including assets, advertising costs, and travel expenses.
Every owner of a small business needs to keep their personal spending distinct from the costs associated with running the company. For instance, if a business owner uses a vehicle for both personal and professional purposes, the associated expenses need to be split up in the right manner.
3. Claim Prepaid Expenses
There are a few typical anticipated expenses that can extend beyond the current fiscal year for a small firm. These expenses include insurance premiums, rent, a tax depreciation schedule, and membership dues.
If the owner of a small business has made any prepaid expenses, they are eligible to claim those costs in the financial year in which the item was incurred.
4. Take Advantage of Immediate Write-Offs for Assets
Small enterprises are entitled to rapid asset write-offs for capital assets up to $30,000, according to federal taxes standards. A corporation might earn much-needed capital assets while also deducting yearly profits in this method.
This also applies to second-hand assets. However, some requirements must be met, such as the asset being ready for use and is used solely for business purposes. It should also be acquired during the fiscal year for which you want to claim deductions.
Aside from that, the small firm should be functioning and have a GST number. It is also important to know that on a $30,000 asset, you can claim a 27.5 percent deduction, which does not cover the total value of the item. As a result, stockpiling capital purchases to take advantage of deductions is not recommended.
5. Keep Your Financial Data Organised
Maintaining accurate and well-organized financial records throughout the course of the year is one of the most important steps you can take to complete your tax return in a timely and effective manner. Constructively accomplishing this goal might be done in two different ways. These are discussed in further detail below.
a. Accounting in the Cloud
Recording and calculating monetary expenditures, revenues, profits, and losses are simplified with the use of a cloud-based accounting system. A small business needs to find a way to keep track of all of their financial transactions in a single location, so they should join one.
The use of cloud accounting enables you to simply search for transactions, which stops the misplacing of documents like receipts and other paperwork.
In the meantime, it makes things like staffing, inventory management, and billing much easier. Your business consultants and accountants will have easy access to all of your financial data and will be able to work on it to assist you in meeting all of your financial requirements and commitments.
b. The Exchange of Digital Files
The sharing of digital files is yet another method for expediting the process of financial reporting and maintaining its organization. This can be accomplished with the use of dropbox files that contain reports and accounts that have been organized into different files.
You also have the option of continuing to record transactions in Google Excel files that may be shared with your accountant and used simultaneously. This also makes it easier for significant comments to be made against entries.
You can remain on top of your tax returns by using the Australian Taxation Office app, which provides a convenient way to record your business travel-related logbook activities as well as receipts. This is one more way to stay organized with your tax returns.
6. Stay Current on the Developments in the CGT (Capital Gain Tax)
When a small firm sells its active capital assets, such as commercial buildings or a trade, the government enables the company to deduct taxes at a rate of up to fifty percent of the sale price. To be eligible for such deductions, a small business must, however, pass a net asset test of $6 million in order to qualify.
If a replacement asset is obtained within two years after selling the CGT asset, then this exemption will be postponed until the replacement asset is sold. In this scenario, the gain will not be realized until the replacement asset is sold. In addition, the rate at which the deduction is made varies according to a number of factors that are established by the government. As a result, changes in terminology require investigation before they can be properly implemented.
7. Be aware of the deductions available to you.
There is a rundown of tax deductions that are available to be claimed by owners of small enterprises. In most cases, these are related to the following:
- Expenses incurred in connection with official business travel, subject to verification of receipts;
- Expenses related to automobiles used for business;
- Claims for reimbursement of expenses incurred when working from home are only valid if the worker maintains a home office;
- Thefts and insurances such as worker’s compensation, insurance on assets, and so on are deductible;
- Assets that are subject to depreciation, including but not limited to automobiles, buildings, and other structures;
- Maintenance, as well as the repair, replacement, and upkeep of many pieces of machinery and equipment;
- The deductions that an employee is eligible to take include salary payments, fringe perks, and superannuation contributions. A solo proprietor who contributes to his retirement fund is also eligible to claim these deductions;
- For the purposes of tax management, you may also be eligible to claim deductions for the cost of hiring bookkeepers, accountants, and other specialists;
- It is possible to claim a tax break for expenses related to advertising and sponsorship when those expenses are used to promote products, recruit employees, or sell trading stock.
- In the event that an itemized bill is presented, deductions for business calls may be claimed;
- Following the implementation of stringent surveillance, cryptocurrency is also deductible.
8. Deductions From Income Taxes
If the annual income of a small business is less than $5 million, the company may be entitled for a tax credit of approximately $1000. This offset rate is currently 8 percent of the currency’s value, but it could rise to 16 percent in the future. A tax break of this kind encourages more innovation among small enterprises, which in turn boosts overall output. Additionally, it protects microbusinesses from having to pay excessive income taxes.
9. Reduced Rates of Taxation for Businesses
Small corporations stand to gain from reductions in the rates of taxation applicable to companies. Enterprises with annual revenues of about $10 million or less will be eligible for a reduction in the company tax rate of 2.5 percent, while businesses with annual revenues of approximately $25 million or more would receive an extended cut in the tax rate.
If a company meets these requirements and delays sending invoices until after the end of the year, the company may qualify for a reduced tax rate of 27.5 percent rather than the standard rate of 30 percent. This is due to the fact that the new tax year will be used to compute things like profits and income. In addition, this will have an effect on the free dividends, which will give the owner the opportunity to reward himself with dividends.
10. Ensure that your loans are in balance.
When a director obtains financing in addition to his compensation, this type of borrowing is referred to as the director’s loan. If this balance remains unpaid until the end of the fiscal year, it will be subject to interest charges but will not qualify for any tax deductions. As a result, maintaining a healthy loan balance is essential to qualify for exemptions.
11. Refrain from spending any of the company’s money on your own personal expenses.
In accordance with the regulations regarding considered dividends, the shareholder will be subject to unfranked and taxable dividends if they take out a loan from the private firm whose shares they own. As a consequence of this, in the event that these are not repaid before the end of the tax year, they will be considered to be income and will be deducted as franked dividends.
Apart from this, if a corporate asset is used for personal use for less than market value, these will also be exposed to presumed dividend restrictions. As a result, an individual will have the opportunity to pay a forecasted price for the use of assets that is less than the actual amount.
The transfer of assets to shareholders as an alternative to the distribution of capital dividends is another option, and those assets can also be used to repay shareholder liabilities. Once more, this will contribute to the resolution of tax issues. Nevertheless, the value of the asset on the market will determine whether or not the transaction is good value for money.
If an Australian small business remembers all of these essential tax guidelines for the year 2020, then they will be able to file their taxes with flying colors in that country.
12. Seek the Opinion of Professionals
As a proprietor of a small company, it is imperative that you get your tax situation under control. This point cannot be emphasized enough. Because there are so many deductions and claims that may be made on taxes, you want to be sure that your documentation is in the most capable hands available. We have the most qualified tax accountants available to assist you in navigating the current tax season and implementing tax minimization strategies appropriate for your situation.
Any small business in Australia will be able to ace the process of submitting their taxes for the year 2022 if they remember all of these crucial tax guidelines and keep them in mind.
Our accountants for small businesses have a wealth of experience and meet all of the requirements necessary to meet all of your requirements. Our spectrum of services includes business growth and counseling, as well as accounting and tax preparation, company formation, and self-managed super fund formation. So, if you want to be sure that your company is always on top of its finances, give us a call right away.
How to Decrease Your Tax Bill for Your Small Business
The conclusion of each fiscal quarter brings about additional stress and a substantial tax burden for the owners of many small businesses. Your tax bill for your small business can be reduced in a number of straightforward and legal ways, allowing you to fulfill all of your financial duties related to taxes.
The following is a list of things that you can start doing right away, as well as things that you can start planning for before the conclusion of the current fiscal year.
1. Claim asset depreciation
If your gross annual turnover is less than $10 million, you are eligible to claim an instant asset write-off on any assets with a value up to $20,000, regardless of whether or not they were purchased by your company.
This implies that you have until the 30th of June to make an investment in an asset worth up to $20,000, and then you can claim the entire amount as a deduction on your tax return. If you do this, the amount that the asset cost will be subtracted from the taxable income you report.
2. Make concessional superannuation contributions
Contributions to your concessional superannuation fund are subject to tax at a rate of 15 percent, which is likely to be lower than the rate at which you are taxed on your income. In addition, you are eligible to claim a deduction for your contributions.
No of an individual’s age, the maximum amount that can be contributed to a general concessional super account is $25,000. For this reason, it is a good idea to make contributions that are practical up to that maximum by the 30th of June if you are able to do so.
3. Maintain a logbook for all company vehicles.
If you want to be able to appropriately claim back car expenses when it comes time to file your taxes, it is in your best interest to try to keep a logbook of the use of your company vehicle for at least 12 weeks during the year.
When a car is used for business purposes that qualify for a tax deduction, you should retain all receipts and invoices connected to the vehicle’s expenses. These expenses include things like gas and maintenance.
4. Delay the receipt of income and advance the payment of expenses
You can reduce the amount of money you owe in taxes by postponing taxable revenue to the following fiscal year. For instance, if you delay issuing invoices until July 1st, the total amount of those invoices will not be included in the calculation of your taxable income for the prior fiscal year.
5. File a deduction claim for costs that weren’t paid by the end of the fiscal year.
Even if you haven’t paid for all of your expenses by the end of the fiscal year, you may still be able to deduct some of them from your total earnings. These costs include the following items:
Staff salaries and wages: make a claim for the number of days workers have worked up until the 30th of June but will not be paid until the new fiscal year begins.
Staff bonuses: If you are committed to paying the expense, you are eligible to claim a tax deduction for staff bonuses and commissions that were owed but unpaid as of the 30th of June.
Maintenance and repairs: you can put in a claim for work that was completed and billed by the 30th of June, but the payment won’t be made until the following year.
6. Cancel all of your unpaid bills.
You are eligible to claim a tax deduction for bad debts, provided you can demonstrate that the obligation was cancelled or forgiven by the end of the tax year (June 30) and that the amount was initially reported as income. Put your decision in writing (for example, in the minutes of a meeting), which you may then use as proof to show that the debt was forgiven before the end of the fiscal year.
7. File a claim for a tax credit for small businesses.
If you are self-employed and run your firm as a sole proprietorship, you might be able to lower the amount of income tax you owe by as much as one thousand dollars annually by claiming a small business tax offset on your tax return. The Australian Taxation Office (ATO) will determine your offset based on the information you supply when you register your tax return.
8. Report payments made to JobKeeper
The JobKeeper program was made available to eligible employers in the year 2020 in order to assist them in providing salary subsidies for their employees during the pandemic. If you took advantage of the incentive, then you are required to list them on your tax return because they are considered taxable income.
This means that if you are a sole proprietor, you will need to include the payments as revenue from your firm on your individual tax return. You are exempt from the requirement to record it as income for a partnership, trust, or firm; but, you are required to disclose the payment as:
Include your company’s income in the tax return for the year;
Include income from your business in the tax return for your trust or partnership.
Keep in mind that the total JobSeeker payments that need to be included on your tax return will be impacted in some way by the accounting method that you use. The procedure is carried out differently for companies that operate on an accruals basis as opposed to a cash basis.
If you have received an overpayment from JobKeeper, you should be informed that you will be required to reimburse that money.
The advice presented above can assist you in lowering the amount of money that you owe in taxes. However, in order to ensure that you are doing your business in the most tax-efficient manner possible and are meeting all of your requirements, it is always a good idea to obtain the expert guidance of a tax specialist or accountant.
If you are uncertain as to which of the aforementioned pieces of advice are applicable to you and your company, it is in your best interest to check with an expert first or to seek additional information from the Australian Tax Office.
Business Tax FAQs
1. I recently launched my own company, and I’m curious about whether or not I need to register for GST.
Businesses in Australia that have annual revenue of $75,000 or more are required to register for the goods and services tax (GST). If your company has a lower turnover, registering is voluntary but not mandatory; however, you are free to do so if you so choose.
If you are registered for GST, you will be the only one who is required to charge it to your consumers. When you submit your application to register for GST, the local office can help you with the process.
2. I own a firm that delivers furniture and I have a five-ton truck, which is becoming more expensive to operate. It has been brought to my attention that the government offers tax credits to businesses to offset the expense of fuel. How to qualify for a rebate on your fuel tax payment.
The majority of businesses in Australia are eligible to claim fuel tax credits for the operation of machinery, plant, equipment, and heavy vehicles that are utilized in the operation of that firm.
The company needs to be registered for the Goods and Services Tax (GST) in order to be able to submit a claim, and the claim needs to be made on the Business Activity Statement (BAS) that is required to be lodged.
The quantity that can be claimed will vary according to the kind of gasoline that was used and how it was put to use. In situations where alternative fuels, such as LPG, are utilized, fuel tax credits are not available.
3. I am the sole proprietor of my company and would like to know how to reduce the amount of annual taxes I owe.
You would be eligible for a number of concessions for small businesses if your annual revenue is less than fifty million dollars. These concessions include the following:
- income tax concessions;
- excise concessions;
- concessions about the Goods and Services Tax (GST);
- instalment concessions for users of the Pay As You Go (PAYG) system;
- Provisions on the Fringe Benefits Tax, sometimes known as the FBT.
- The requirement of $50 million in annual sales applies to the majority of concessions, with the following exceptions:
- small business payroll must not exceed $5 million to qualify for the small business income tax offset;
- The minimum annual turnover required to qualify for the capital gains tax (CGT) discounts is $2 million.
4. I am self-employed, and throughout this year, I have contributed money to my personal superannuation fund. What exactly can I argue?
You will be entitled to claim a deduction for the contributions to superannuation that you have made to a compliant superannuation fund or retirement savings account, provided that you meet the eligibility requirements. This deduction can be used to reduce your taxable income.
To be eligible for this, you must be completely self-employed or have an income from employers that accounts for no more than 10 percent of your total assessable income (which also includes reportable fringe benefits and reportable superannuation contributions). In addition to this, you are required to have first informed your superannuation fund of your intention to make a claim and obtained confirmation of this notification.
5. I’ve been told that those who are self-employed are eligible to receive a co-contribution from the government toward their pensions. If I paid into my retirement account this year and ran my own business, does that make me eligible for benefits?
If more than 10 percent of your total assessable income comes from running that business, qualified employment, or a combination of the two, you may be eligible for the superannuation co-contribution. Eligibility is determined by how much of your total income comes from those sources.
The income from investments does not count toward the required minimum. Only the amount of your superannuation co-contributions that you do not claim as a tax deduction will be eligible for the co-contribution. If you claim any of your contributions as a tax deduction, you will not receive the co-contribution.