Tax Planning 2017 – It’s time!
Nothing hurts a business owner more than having to pay hard earned profits to the tax man… What’s worse is that most small business owners pay even more tax than is required. Here is 5 tips to help you prepare for the 30 June deadline and legitimately bring the tax bill down.
1. BE PREPARED AND ORGANISED
It may be the boring tip but it might just save you the most money out of all! You can only claim deductions if you know about the expense and poor record keeping costs Australian businesses thousands of dollars each year. The new cloud based accounting software helps with this process by feeding your bank statements and credit cards directly into your business file. However think about any other ‘out of pocket’ costs paid from your personal bank account or on the personal credit card. These costs may be deductible if they have a connection with your business so you don’t want to miss them. Some particular areas to look at include:
- i. Business purchase costs such as travel, advisor fees, courses and your own research. These costs are usually paid before you setup the business bank account. Send a list of all costs to your accountant as they may give you an immediate tax deduction or a deduction spread over the first years of your business.
- ii. Fuel, office supplies and small one-off items purchased with cash or on the personal card
- iii. Home office usage and equipment – If you use part of your home as an office you will need to keep a log of the time, space and items which are used for business.
Every deduction helps bring down the tax bill. Remember that your accountant is best placed to make a call on whether the expense is deductible. There is no harm in providing all expenses to your accountant so that they can identify any costs which are legitimately deductible.
Poor records can also cost you money… If you can’t get the information to your accountant in time or the information is wrong, then you risk late lodgement interest. Also, if the ATO comes back and has to correct your tax assessment, you will need to repay any shortfall in tax owing as well as interest and penalties. Get it right the first time so you don’t need to be dealing with any follow up questions from the ATO!
2. GET ADVICE WELL BEFORE 30 JUNE
Tax planning is key to legitimate minimisation of your tax bill. In many circumstances you need to have made decisions or have taken steps before the end of the financial year. If you are thinking about tax in July and August then you may have missed the boat for some of the strategies.
We also recommend that you don’t leave it to the last week of June! You may get some great advice but if you don’t have time to take the necessary steps before the 30 June deadline then you may miss out.
3. UNDERSTAND THE TAX CONCESSIONS
Believe it or not the tax laws aren’t all written to take money away from business! Many of the rules and regulations are actually there to give tax breaks to small business owners and you have every right to take advantage of them. The big ones for 2017 include:
- i. $20,000 immediate write-off for business asset purchases – The government has given you until 30 June 2017 to take advantage of the $20,000 immediate write-off for business assets. Are you looking to replace any furniture, office equipment, machinery, tools or vehicles in the near future? If so, then the time to do it is before 30 June.
- ii. Superannuation – Depending on age, business owners may be able to contribute up to $35,000 in super and get a deduction for the contribution. Next year you may be capped at $30,000 so if you are planning on building your super and lowering the tax bill then you might put some surplus cash into super. There are many rules around super so it’s best to check with your advisor before making a contribution. Remember that the money needs to go in before 30 June. One day late and you miss out!
- iii. Prepaid interest – You can bring forward next year’s interest deduction by paying a lump sum of interest before 30 June. Just like super you will need to make sure you have the cash available to do this and you will need to talk to your bank about the process for prepaying interest.
Always remember that tax deductions are great but you don’t want to waste money on purchases for the sake of the tax outcome. Spend money on your business if it is going to help maintain or grow your profits and the tax break is a bonus!
4. SET A LONGER TERM PLAN
It is never too early to plan for the eventual sale or your business. There are small business capital gains tax concessions available to reduce or even eliminate the tax you will pay on the eventual sale of your business. In most cases the business is your most valuable asset so careful planning will ensure that you minimise your tax bill in 2017 as well as later income years.
You need to make sure that your advisor understands your longer term goals. Smart advisors will look 4 or 5 years ahead to work out how best to minimise your tax bill over the longer period. Good tax planning is also about understanding the cash you will need now and in the future so that the savings you make this year are not unwound in the next years.
5. BEWARE OF BAD ADVICE
At this time of year you will hear a lot about tax in sales campaigns. You wouldn’t ask your tax advisor to tell you about the performance of a vehicle so be wary when your car dealership gives advice on tax! The devil is often in the detail and you should check with your advisor before making any significant purchases or investments.
Also there may be investment schemes out there which are promoted to provide tax advantages. If tax is the driver for any investment then you can be sure that the ATO will be hot on the trail of the promoter and the investors. The ATO can amend your returns and charge heavy interest and penalties if you have entered into an arrangement to get a tax deduction.
Good luck with tax planning and we hope that 2018 is profitable for you and your business.
The information, opinions or conclusions provided above are generic in nature and do not express individual advice or recommendations. You should always consult a suitably qualified professional before taking any course of action outlined above. Holmans welcome any queries you may have in relation to the above matters.