TAX SAVING TIPS FOR SMALL BUSINESSES AND INDIVIDUALS
With the end of the financial year approaching quickly, it is time to start thinking about tax planning strategies. We are currently sitting down with our clients and working through our end of year tax planning process. It is great for people who either:
a) Think they are paying too much tax;
b) Think they are missing out of deductions;
c) Have no idea when they are going to be up for more tax to pay.
Here are a few strategies to think about before 30 June.
Wages vs Company Profits– It’s important to figure out how much you want to pay yourself as the director and how much you want to leave in the company. Small business company tax rates are at 27.5%, whereas individuals can pay up to 49% in tax. It’s important to get this balance right.
Super– a) Super is only deductible when it is paid. Therefore, your April to June 2017 super for your employees should be paid at the end of June 2017 (providing cash flow permits); b) Business’s owners should think about making additional super contributions in June 2017. Tax rates in super are 15% whereas tax rates outside of super can be up to 49%! Remember, do not go over your super contributions cap as this could be a costly mistake!
Asset Purchases– If you are thinking of purchasing an asset shortly, now is the time to do it. If you are a small business, you can get an immediate deduction for depreciating assets that cost less than $20,000. A small business is a business with turnover of under $10M now, not $2M as per last year.
Accounts receivables– Business’s pay tax on the money that their customers owe them. Yes that’s right, even if you haven’t collected the cash from your customer, you still pay tax on them! Therefore, its great practice to sit down in June, look over your accounts receivable report and make sure that all customers that are NOT going to pay you are written off so you don’t pay tax on these.
Hold off on your invoicing– as per the point above, if you hold off on your invoicing to the first week of July then you won’t be taxed on these sales. In saying this, you need to keep in mind your tax brackets for both income years as you don’t want to push income next year if you are going to pay for it later.
Accounts payable– On the flipside to tip 4, you can claim deductions for expenses that haven’t been paid but relate to the financial year you are doing your tax return for. Make sure that all tax invoices that you have received have been entered into your accounting software before your accountant gets it so they are claimed as a tax deduction.
Claim before you spend– any of the following are ok to claim early: a) Staff bonuses—claim a tax deduction for staff bonuses and commissions that are owed and unpaid at 30 June where the business is "definitely committed" to the expense. b) Directors’ fees— claim a tax deduction for directors’ fees that are "definitely committed" to at 30 June and have passed an appropriate resolution to approve the payment. c) Repairs and maintenance—claim repairs undertaken and billed by 30 June but not paid until the next financial year.
Loans from the company- It is important to note that the company’s money is the company’s money. If you are the owner borrowing money from the company, you need to get in contact with us as there are huge penalties that can apply if the rules aren’t followed here.
Scrap stock– If you have obsolete or out of date stock, you can write these off before 30 June and tax a tax deduction for it this year.
Restructure required? Are you operating under the correct structure? Sole trade, partnership, trust, company, you have quite a few options and each structure comes with its pros and cons. June is the perfect time to review your structure, not for the current year, but for the years ahead.
Talk to your accountant– it is important that every business owner has a tax planning meeting with their accountant in May or June every year. Too often I see small business owners paying too much tax because they haven’t spoken to the right accountant.
Do you know what expenses you can claim? How are you meant to keep receipts and give your accountant the receipt if you don’t know what you can claim. If you are unsure, please get into contact with your accountant, or us, to send through a deduction finder tool!
Have you sold an asset this year that you will have capital gains tax to pay? There may be ways to reduce this if you act before 30 June like bringing forward capital losses to offset your capital gain. There is no point having a capital gain in the 2017 financial year and a capital loss in the 2018 financial year! Or if you have a big capital gain this year, why not bring forward 2018 tax deductions to get your taxable income down!
Prepay Expenses– by prepaying some 2018 tax-deductible expenses before 30 June 2017 you can actually claim them in your 2017 tax return. This includes things like income protection insurance premiums and interest on investment property loans.
Defer your income– All contractors should be thinking about deferring some of your June invoices to July. This means you won’t be taxed on them for an extra 12 months. Hold off and invoice them 1 July!
Claim work related expenses– Most individuals under claim their work-related expenses. Think any expense that helps you derive your income. Mobile, internet, Ipad, laptop, stationery, subscriptions, licences. The list goes on.
Maximise your motor vehicle deduction– There is now only 2 ways you can claim your motor vehicle expenses, it’s important to make sure you are using the one that gives you the best deduction. Make sure you are using the right one for your situation!
Private health insurance– if you earn over $90,000 a year then you must have private health insurance. If you don’t then you can be charged an extra 2% tax.
Repairs & Maintenance– do you hold an investment property or claim motor vehicle expenses on your tax return? If so, if you have some much-needed repairs to be completed, then do them before 30 June 2017 so you can claim them on your tax return! Don’t do them in July as you delay the tax benefit for 12 months!
Depreciation on investment property– If you own an investment property, don’t forget to claim things like the cost of building depreciation, depreciating assets and borrowing costs. By getting a quality surveyor report, you can generate $1,000’s of depreciation deductions that so many property investors don’t know about.
Donations– Now is the time to donate money to charity if you are thinking of doing it. Keep your receipts as these are tax deductible.
Reduce capital gains tax– make sure you include everything in your cost base (the cost of your investment) so it reduces your capital gains income. Also think about selling investments that have made a loss to offset any current year capital gains. This area is quite complex so if you have sold an investment, give us a buzz so I can give you a quick rundown on things you need to look out for.
Get advice– accountants know if you are under claiming or over claiming on expenses. A good one will make sure they reduce your tax bill or generate a bigger refund then the cost of their tax invoice.
Keep receipts– take a photo and store the receipt in a Dropbox folder. You can then bin the receipt. Try to pay business expenses on a credit card as this helps with proof of purchase.
Contractors– make sure you are putting money aside for 18 months’ time when you need to pay your tax bill. Don’t get to the end and have already spent your tax bill!