It’s a feeling many business owners know too well: the dread
of a hefty tax bill. Just as you are preparing to launch into another financial
year, the unexpected burden of a large payment to the ATO is a financial blow
that limits your cash flow, throws your plans off track and hurts the bottom
line.
But it doesn’t have to be this way. According to Retinue
Accounting Co-Founder Steven Nicholson, many business owners are simply paying
more tax than they should.
“Unfortunately, it’s all too common for business owners
to get to the end of the financial year, let their accountant prepare their tax
return, and be hit with tax bill shock,” he says. “Oftentimes they’re
not getting the timely accounting advice that they need throughout the year, or
they have got caught up in the day-to-day running of their business that they
have lost track of all of the deductions that they are entitled to claim.”
“But with a basic strategy and armed with a few simple
tactics, business owners can significantly reduce their tax liabilities and
preserve the cash they need to hit the next financial year running.”
Let’s look at some practical ways you can reduce your tax
bill.
The simplest way to reduce tax is also the most obvious –
claim all available deductions. Yet business owners are often so busy running
their business that they fall behind on the paperwork, tracking and reporting
that can help maximise their deductions come tax time.
Any expense that has been incurred in generating your
taxable income should be a legitimate deduction. There are the obvious
write-offs including workers’ salaries, utilities, vehicle, and travel
expenses, but also additional items such as repair and maintenance costs,
depreciating assets and interest on business loans.
“It seems simple, yet too often we see business owners
not claiming all of the deductions that are available to them,” Mr
Nicholson says. “Don’t leave cash
on the table. Get your financial records organised and make sure you exhaust
every opportunity to claim a deduction for your business.”
Small businesses can pre-pay up to 12 months of certain
deductible expenses before the end of the financial year (such as rent,
subscriptions and utilities), and accelerate the timing of deductions. However,
while pre-paying those expenses can be an easy way to reduce your tax bill, you
still have to find the cash to pay those costs in the first place. This is
where business owners must strike a balance that suits their particular
financial circumstances.
“Each business is different, and their financial
priorities vary,” Mr Nicholson says. “You have to ask yourself: is
saving tax my main priority right now, or do I need to preserve the cash?
Consider your particular situation if you are thinking about pre-paying
deductible business expenses.”
For most small businesses, the Instant Asset Write-Off
allows an immediate deduction on the full cost of eligible assets up to
$20,000. But there’s a catch – those assets must be first used or installed
ready for use before June 30th 2024. If you want to leverage the Instant Asset
Write-Off this financial year, you better act fast.
“One of the main benefits of the Instant Asset
Write-Off is that it can be claimed multiple times, it doesn’t need to be
limited to one asset,” says Mr Nicholson. “A good example would be a
commercial kitchen which would require purchasing a number of high-value items
that meet the deduction criteria. Rather than purchasing those new appliances
in a single transaction, potentially you could purchase them all separately and
claim the Instant Asset Write-Off multiple times.”
Can you hold off on scheduling a job or piece of work until
July? Have you already earned enough for the current financial year? Is it time
for a much-needed holiday? If so, by deferring new work to the 2024/2025
financial year you can limit the amount of assessable income subject to tax in
this financial year.
“It’s a luxury that may not be available to many business
owners,” Mr Nicholson admits. “But it could be an option for some, and worth
exploring to help lower your taxable in this financial year.”
Need a hand getting your business ready for EOFY? Get
your free guide to Preparing for the End of Financial Year or call Retinue
Accounting on 1800 861 566 for a free initial consultation.
*Retinue’s (ABN 66 658 618 449) payroll service includes the processing of hours and wages rates provided by you. We do not determine award rates for your employees or provide advice on the correct employment status of your employees. It is your responsibility to ensure that your employees are paid correctly and we recommend obtaining advice from specialised employment relations experts.
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