10 tax planning tips for small business

As 30 June approaches, many businesses are asking how they can save tax for the year. There’s lots of noise about the instant asset write off and many of the large retailers are offering discounts to entice you to spend before the end of the financial year. But before you leap in, this is only one of the ways to save tax.  Here are 10 tax saving tips for you to think about before you head out to your nearest computer retailer.

  1. The instant asset write off

The most talked about tax-saver is the $30,000 instant asset write off. Now despite what some of the adds will have you believe, this doesn’t mean you can get $30,000 back from the government. It means that if you are a small business, you can claim a deduction for any business assets costing less than $30,000 and which are installed and ready for use by 30 June. Important things to note:

  • It must be an asset used in your business. You can claim a portion if an asset is used for both business and personal use.
  • It must be on your business premises and being used by 30 June. It isn’t enough to have ordered and paid for the item with delivery expected after 30 June.
  • In this financial year, there are 3 thresholds for the instant asset write off:
    • $20,000 if purchased between 1 July 2018 and 30 January 2019.
    • $25,000 if purchased between 30 January and 2 April 2019.
    • $30,000 if purchased after 3 April 2019.

 

  1. Pay superannuation commitments before 30 June

In order to claim a deduction in the current year for employee superannuation, it must be actually paid and received by the superannuation fund before 30 June. If you pay your super using the ATO’s Small Business Superannuation Clearing House, the cut off to ensure this happens is 24 June 2019. So don’t leave it until the last day!.

  1. Contribute to superannuation

An individual can claim a maximum of $25,000 in superannuation during a year – either as a personal deduction or through their employer.

  1. Bad debts

Review your accounts receivable. If you identify a debtor that is not recoverable, write it off. Bad debts are deductible if you’ve included in income previously and has been written off before 30 June.

  1. Prepay or bring forward deductions

Small businesses can prepay up to 12 months of expenses and claim an immediate deduction (eg rent, interest or leasing charges). Likewise, consider which expenses you know will be payable in the first couple of months of next financial year. Is it worthwhile paying early? Remember that this reduces your income in the current financial year, but may mean your income will be higher next financial year. So carefully consider what is being planned in relation to your business for next year. Sometimes, it might be appropriate to delay expenditure if you think next year’s income will be higher than the current one.

  1. Delay invoicing

If appropriate, think about postponing issuing invoices until July.

  1. Identify obsolete stock

If you carry inventory, do a stock take and identify stock which is obsolete or damaged. This can be written off. In order to claim as a tax deduction, the stock must scrapped and have left the premises by 30 June. It isn’t sufficient to identify the stock, you must actually have disposed of it.

  1. Pay employee bonuses

If you are planning on paying employees bonuses, pay them in the last pay of the financial year rather than waiting until July.

  1. Pay directors wages

If you are a director and work in the business, pay yourself a wage, declare the tax and pay superannuation on the wage. This must be considered in light of the tax position of the entire group (that is all individuals, the company etc).

  1. Payment of dividends

Another consideration is the payment of dividends to shareholders. Tax rates for small business companies are falling. This means depending on circumstances, there can be advantages in delaying the payment of dividends or advantages in paying in the current year. There is no cookie cutter approach, so for this, it’s best to discuss with your accountant before 30 June.

 

Some other food for thought. Cash flow is CRITICAL. Many of these options have significant cash flow consequences. You should never prioritise a tax deduction over a commercial decision and certainly, never jeopardise the operating position of your business in order to claim a deduction.

Always look at the long term and at the big picture. Claiming a tax deduction this year, is not always the right approach. You need to think about what you expect to happen not just to your business but in your personal tax affairs.

Finally, tax planning shouldn’t be an annual event rushed in the last few weeks of June. The best way to minimise the amount of tax you pay is to keep good records throughout the year. Have a system – it doesn’t matter whether it’s digital or analogue – it just has to be organised, in one place and done though the year. Don’t wait until after the end of the year – memories, like receipts printed on thermal paper, fade with time.

 

Need some help to reduce your tax leading up to 30 June? I offer a FREE 30 minute initial consultation. You can easily book online here and I look forward to helping you sort your finances!

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