For most small business owners and sole traders, the words “tax planning” probably summon up images of a diary entry to call your small business accountant and get started on the next BAS or annual tax return.
And if you are completely happy with the amount of tax you pay, maybe that approach is working for you.
But you might be surprised to discover just how many dollars you are missing out on! We regularly find when clients come to us that they have been under-claiming on legitimate deductions.
A lot of the time, people default to claiming the same types of expenses year in, year out, unless something unusual occurs such as a major purchase of equipment or other major investment.
Maybe this is because it’s a simple way of managing tax affairs - keep a log book, keep records of standard business expenses, crunch the numbers on costs associated with rent, energy use and business communications, and so forth.
1. Find out all your tax deductions
Simple is not always best. Not only are tax laws constantly changing, there are some easy wins in terms of deductions many people forget to claim. The proportion of the private mobile or home internet data costs used for work-related matters, for example. Depreciation on an investment property, also, is another deduction that often gets overlooked.
If you sit down with a good small business accountant and ask the right questions, or if your accountant themselves dives a little deeper into the deductions discussion, you may find there are things you could have claimed in previous years but didn’t.
2. Back-date tax deductions
There are options to change tax returns from prior years if you find something you really want to claim. The ATO generally allows individuals and sole traders to amend returns for two years after the date of the ATO’s tax assessment for the financial year. Businesses may have up to four years from date of assessment.
It isn’t a highly complicated process, but there is some paperwork involved. Unless you love using the ATO’s online portal it’s probably a matter best handled by your tax agent, but keep in mind their time costs money, even if it is deductible in the next tax return
3. Do tax planning
Rather than working backwards, the smart way to go is look forwards, and that’s where good tax planning with your small business accountant comes into it.
When we talk about tax planning with clients, we mean thinking ahead and not waiting until EOFY. Instead, it’s best to get started in March or April and have a thorough look at how income and expenses have been tracking. We also ask clients about where they want their business to be in the next few years in terms of turnover and income, and what kinds of investments they are looking to pursue.
Then, they can start making some strategic decisions about the final quarter of the current financial year that will ensure they are in the best position. That might mean bringing forward some investments, or deciding on a fully-deductible op-ex spend by leasing an item instead of the capex spend of purchasing outright which only gives you depreciation.
The ultimate goal is to nail your tax obligations without giving away a red cent more than you should, while also setting your business up for ongoing success.
Get in control of your tax planning strategies to minimise tax today by downloading our free eBook ‘Your Money, Your Choice - Do Housekeeping’.