In 2021 Tax Tips

Tax Tips For Small Business

As a small business owner, you likely have a lot on your plate. Juggling the day-to-day tasks of running your business and keeping up with paperwork can be daunting. But don’t let tax season get you down – here are some tips to make the process a little less overwhelming. 

Are you a small business owner looking to save on your taxes this year? If so, you’re in luck! In this blog post, we will share some tax tips specific to small businesses. So keep reading for helpful advice on how to reduce your tax bill. 

It can be hard to find time to focus on your taxes between managing your employees, keeping your customers happy, and ensuring that your business is running smoothly. But neglecting your tax responsibilities can end up costing you big time. 

So if you’re looking for some tips on how to make tax season a little less daunting, read on. We’ll outline some key things you need to know to file your taxes safely and efficiently. And if you’re still feeling overwhelmed, don’t worry – we’re here to help!

As a small business owner, you’re likely familiar with the challenges of completing your tax return. And while it can be daunting, there are ways to make the process easier and less expensive. 

In this blog post, we’ll share some tips that can help you reduce your tax liability and keep more money in your pocket. So read on for helpful advice on everything from deductions to record keeping. We promise, with a little bit of effort, you’ll be well on your way to filing your taxes like a pro!

It can be hard to find the time to focus on your taxes between managing your employees, keeping track of your finances, and ensuring that your products or services are up to par. 

But neglecting your taxes can lead to some serious consequences, so it’s important to make sure you’re taking the proper steps to minimise your tax burden. This blog post will discuss some tips for reducing your small business taxes. Keep reading for more information!

You’re responsible for everything from sales and marketing to accounting and payroll. And let’s not forget the day-to-day tasks like creating and shipping products or providing customer service. So it’s no surprise that tax season can be just one more thing to worry about. But don’t stress! These tax tips will help make filing your return a little easier. 

First, make sure you keep good records throughout the year. This means saving all of your receipts and invoices, as well as bank statements and credit card statements. Then, if you’re ever audited, you’ll be glad you have them!

Not only do you need to run your business, but you also need to keep track of your finances and make sure you’re paying the right taxes. Thankfully, some tax tips specifically for small businesses can help make the process a little bit easier. So if you’re looking for some help in this area, read on for some useful advice.

Thanks for reading!

1. What Is A Small Business?

From a taxation standpoint, a business’s geographical size or the number of employees doesn’t determine whether it’s a small business. Only a business with an aggregated annual turnover of less than $10 million can be classed as a small business and take advantage of the several tax concessions. 

2. Strong Record Keeping And Tracking Split Expenses

The number one rule for any small business is to track any expenses incurred and income earned during the financial year.

The Australian Taxation Office (ATO) requires records to be kept for five years and includes any expenses from assets to advertising costs and business travel.

Every small business owner must keep their personal expenses separate from business-related expenses. For example, if a business owner uses a vehicle for personal and business use, expenses must be apportioned appropriately.

3. Claim Prepaid Expenses

Several common small business prepaid expenses can go beyond the current financial year, including insurance premiums, rent, a tax depreciation schedule and memberships.

If any small business owner has made any prepaid expenses, they can claim this expense in the financial year it occurred.

4. Avail Immediate Asset Write-Offs

As per the government’s taxation guidelines, small businesses are eligible for instant asset write-offs for capital assets up to $30,000. In this manner, a company can gain much-needed capital assets and avail deductions against yearly profits simultaneously. 

This applies to second-hand assets as well. However, there are certain prerequisites to be kept in mind, such as that the asset should be ready for use and should be used only for business purposes. Also, it should be purchased in the financial year for which you want to avail deductions. 

Other than this, the small business should be an operational one with a GST number. It is also vital to remember that on an asset worth $30,000, you can avail of a 27.5% deduction which will not cover the entire value of the asset. Therefore, hoarding onto capital purchases to avail of deductions is not advisable.

5. Keep Your Financial Data Organised

One of the most significant points to file taxes efficiently and productively is to keep your financial records updated and organised throughout the year. There are two ways of achieving this constructively. These are explained below.

a. Cloud Accounting

A cloud accounting system makes it easier to record and calculate financial expenses, incomes, gains, and losses. A small business should latch onto one to keep all financial transactions organised in a single place. 

Cloud accounting allows you to search up transactions easily, thereby preventing the displacement of receipts and such. 

Meanwhile, it also facilitates staffing, inventory, and invoicing. Your business advisors and accountants can easily access your financial data and work on it, helping you keep up with all financial requirements and obligations.

b. Digital File Sharing

Another way of streamlining financial reporting and keeping it organised is through digital file-sharing. This can be done through dropbox files consisting of reports and accounts arranged in separate files. 

Alternatively, you can also share Google Excel files with your accountant and keep recording transactions in them. This also facilitates important comments against entries. 

One more way of staying on top of your tax returns is through the Australian Taxation Office app, in which you can conveniently record your business travel-related logbook activity as well as receipts.

6. Be Informed About CGT (Capital Gain Tax) Changes

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When a small business sells its active capital assets like business buildings or a trade, the government allows them up to 50% tax deduction. However, to be eligible for such deductions, a small business must pass a $6 million net asset test. 

This exemption is deferred if a replacement asset is purchased within two years of selling the CGT asset. In this case, the gain is deferred until the replacement asset is disposed of. Furthermore, the deduction rate varies as per several criteria set by the authorities. Therefore, changes in terms need to be researched and applied accordingly.

7. Know Your Tax Deductions

There is a list of tax deductions that small businesses are eligible for. These usually pertain to the following:

  • Business travel-related expenses on presentation of receipts
  • Expenses on business vehicles
  • Work from home claims are only eligible if one operates a business from a home office
  • Thefts and insurances such as insurance on assets, worker’s compensation and so on are deductible.
  • Depreciating assets such as machinery, plant, and equipment, cars, buildings, and more
  • Repair, replacement, and maintenance of machinery parts and equipment.
  • Employee salary payments, fringe benefits, superannuation contributions are also eligible for deductions. A sole operator adding to his superannuation will also claim such deductions.
  • Deductions can also be claimed on hiring bookkeepers, accountants, and other professionals for tax management purposes.
  • Advertising and sponsorship to promote products, hire staff, and sell trading stock are eligible for a tax deduction.
  • On presenting an itemised bill, business calls are allowed for deductions.
  • Cryptocurrency is also deductible post strict surveillance.

8. Income Tax Offset

If a small business’s revenue is less than $5 million, it is eligible for around $1000 off its tax bill. This offset rate is currency 8% but may increase to 16% later. Such an exemption allows more innovation by small businesses and increases productivity. It also saves micro-businesses from high-income tax.

9. Cuts In Company Tax Rate

Incorporated small businesses can benefit from cuts in company tax rates. Firms with a turnover of less than $10 million will be eligible for a 2.5% off the company tax rate, while businesses with around $ 25 million will get an extended cut in the tax rate. 

Businesses falling under these criteria will be eligible to pay a 27.5% tax rate instead of 30% if they defer invoices before the year-end. This is because such profits and income will be calculated in the new tax year. Additionally, this will impact the free dividends allowing the owner to reward himself with dividends.

10. Carry Out Loan Balancing

If a director borrows capital outside of his wage, this can be termed the director’s loan. If this is left unpaid till the end of the financial year, it will be eligible for interest but no tax deductions. Therefore, balancing loans is prime to avail exemptions.

11. Refrain From Using Company’s Capital For Personal Use

If a shareholder borrows money from the private company whose share it holds, these will be unfranked taxable dividends under the deemed dividends rules. Therefore, if these aren’t repaid before the end of the tax year, they will be treated as income and will be set off as franked dividends.

Apart from this, if a business asset is used for personal use for less than market value, these will also be subjected to deemed dividend rules. Therefore, one will be eligible to pay a predicted amount for the use of assets less than the actual amount.

Assets can also be transferred to shareholders instead of capital dividends and can be used for repayment against loans given by shareholders. Again, this will help solve tax problems. Nonetheless, the asset’s market value will determine whether it is a cost-effective deal or not.

By keeping in mind all these important tax tips, a small business will be able to ace tax filing in Australia for the year 2020.

12. Get Expert Advice

This can’t be understated, but it is vital that, as a small business, you have your tax sorted. With so many tax deductions and claims to be made, you want your paperwork in the best hands possible. We have the best tax accountants to help you navigate this tax season and incorporate tax minimisation into your circumstance.

By keeping in mind all these important tax tips, any small business will be able to ace tax filing in Australia for the year 2022.

Our small business accountants are highly experienced and qualified to cater to your every need. Our services range from accounting & tax, setting up a Company or Self-Managed Super Fund, and business growth and advisory. So give us a call today to ensure that your business stays on top of finances.

How To Reduce Your Small Business Tax Bill

For many small business owners, the end of each financial quarter signals added stress and a hefty tax bill. Fortunately, there are many simple and legitimate ways to reduce your small business tax bill while meeting all your tax obligations.

Below is a list of what you can start doing today and what you can begin to plan for before the end of the fiscal year.

1. Claim asset depreciation

If your gross annual turnover is under $10 million, you’re eligible to claim an instant asset write-off on any assets up to the value of $20,000. 

This means that you can invest in an asset of up to $20,000 until 30 June and then claim back the full amount on your tax return. If you do this, your taxable income will be reduced by the asset’s cost.

2. Make concessional superannuation contributions

Concessional super contributions are taxed at a rate of 15%, which is likely to be lower than your income tax rate, and you can claim a deduction on contributions. 

The general concessional super contributions cap is $25,000 for all individuals regardless of age. That’s why it’s a good idea to make feasible contributions up to that limit before 30 June, if you’re able to.

3. Keep a business vehicle logbook

It would be best if you tried to keep a logbook of your business vehicle use for at least 12 weeks during the year, allowing you to claim back vehicle expenses at tax time accurately. 

Legitimate business use of a vehicle is tax-deductible, so you should also keep all receipts and invoices related to vehicle expenses, such as petrol and maintenance.

4. Defer income and bring forward expenses

You can cut down your tax bill by deferring taxable income to the next financial year. For example, if you delay invoicing until 1 July, the invoice amount won’t count towards your taxable income for the previous financial year.

5. Claim deductions for expenses not paid by EOFY

You can still claim deductions for some expenses, even if they haven’t yet been paid by the end of the financial year. These expenses include:

  • Staff salary and wages: claim the number of days employees have worked up to 30 June but have not been paid until the new financial year.
  • Staff bonuses: claim a tax deduction for staff bonuses and commissions owed and unpaid on 30 June if you are committed to paying the expense.
  • Repairs and maintenance: claim repairs carried out and billed by 30 June but not paid until next year.

6. Write off bad debts

You can claim a tax deduction on bad debts if you show that the debt has been written off by 30 June and that the debt was originally shown as income. Put your decision in writing (such as in meeting minutes), which you can use as evidence that the debt was written off before EOFY.

7. Claim a small business tax offset

If you operate as a sole trader, you could be eligible to claim a small business tax offset on your tax return, which can reduce the amount of tax you pay by up to $1000 a year. When you lodge your tax return, the ATO will calculate your offset based on the information you provide.

8. Report JobKeeper payments 

The JobKeeper program became available in 2020 to help eligible employers subsidise staff wages during the global pandemic. If you used the incentive, then you will need to include them on your tax report as they are taxable. 

This means including the payments as business income on your individual tax return for sole traders. For a partnership, trust or company, you don’t need to report it as income, although you should report the payment as:

  • Income in your company tax return
  • Business income in your trust or partnership tax return

Remember that your accounting method will affect the total JobSeeker payments that need to be included on your tax return. The process is different for businesses operating on accruals versus cash basis.

Be aware that you will need to repay that amount if you’ve received a JobKeeper overpayment.

The tips above can help you cut down on your tax bill. However, it’s always a good idea to seek professional advice from a tax specialist or accountant to make sure you’re operating as tax-efficiently as possible and meeting all obligations.

If you’re unsure whether any of the above tips apply to you and your business, double-check with a professional first or seek out further information from the Australian Tax Office.

Business Tax FAQs

businessman workig and using calculator with laptop on desk

1. I have started my own business and wonder if I need to register for GST.

Australian businesses with an annual turnover of $75,000 or more must register for GST. If your business has a lower turnover, you are not required to register, but you may do so if you wish. 

You will only be required to charge your customers GST if you are registered. Your local office can assist you with your application to register for GST.

2. I run a furniture delivery business & have a 5-tonne truck, getting very expensive to run. I’ve heard the government gives business tax rebates for the cost of fuel. How to qualify for a fuel tax rebate?

Most Australian businesses can claim fuel tax credits for running machinery, plant, equipment and heavy vehicles used in running that business.

To be eligible to make a claim, the business must be registered for GST, and the claim should be made on the Business Activity Statement (BAS) that is required to be lodged.

The amount that can be claimed will depend on the type of fuel and its use. Fuel tax credits are not available where alternative fuels (e.g. LPG) are used.

3. I run my own business and want to know how to minimise my annual tax bill?

If your turnover is less than 50 million dollars, you would be able to access several small business concessions, including:

  • income tax concessions
  • excise concessions
  • Goods and Services Tax (GST) concessions
  • Pay As You Go (PAYG) instalment concessions and
  • Fringe Benefits Tax (FBT) concessions.

The $50 million turnover threshold applies to most concessions, except for:

  • the small business income tax offset – which has a $5 million turnover threshold
  • the capital gains tax (CGT) concessions have a $2 million turnover threshold.

4. I am self-employed and have paid personal superannuation contributions all year. What can I claim?

Provided that you satisfy the eligibility criteria, you will be able to claim a deduction for the superannuation contributions you have made to a complying superannuation fund or retirement savings account.

To do so, you must be fully self-employed, or no more than 10% of your assessable income (including Reportable Fringe Benefits and Reportable Superannuation Contributions) is from an employer. You must also have first notified your superannuation fund of your intention to make a claim and received a confirmation.

5. I have heard that self-employed people can claim superannuation co-contribution from the government. Am I eligible because I paid money into my super this year and run my own business?

You may be eligible for the superannuation co-contribution if more than 10% of your total assessable income is from running that business, eligible employment or a combination of the two.

Investment income is not eligible income. If you claim any of your superannuation contributions as a tax deduction, only the amount you do not claim will be eligible for the co-contribution.

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