9 September 2024
Navigating the day-to-day challenges of running a small business — from overseeing operations to ensuring customer satisfaction and driving growth — can be overwhelming. With so much on your plate, it’s easy to let tax responsibilities slide. However, neglecting your tax obligations or making errors can have serious consequences.
In this article, we’ll dive into some of the most common tax mistakes small businesses make and share practical tips on how to avoid them, helping you stay on track and compliant.
1. Failing to Keep Adequate Records
Accurate record-keeping is the backbone of smooth financial management. Without proper documentation, you may miss out on deductions or even face penalties if you’re audited. Many small businesses fall into the trap of mixing personal and business expenses, failing to keep receipts, or not tracking all income.
Keeping detailed records of every transaction helps substantiate your tax returns and makes it easier to identify potential deductions. From income to business-related purchases, ensure you have all receipts, invoices, and bank statements organised and readily accessible.
2. Overlooking Deductions
Small businesses often miss out on valuable tax deductions, either because they’re unaware of them or they don’t have the proper documentation to back them up. Common deductions include home office, vehicle, and business-related travel and entertainment expenses.
To maximise your deductions, keep track of all business-related expenses throughout the year. For instance, if you work from home, you may be able to claim a portion of your home expenses as a deduction. The same goes for mileage if you use your vehicle for business purposes.
3. Missing Tax Deadlines
It might seem obvious, but missing tax deadlines such as BAS and the super guarantee is a surprisingly common mistake. This can lead to penalties and interest charges. In addition to the end-of-year tax return, small businesses must be aware of BAS, employee tax obligations, and other filing deadlines throughout the year.
Failing to file on time or not making required payments can result in hefty fines that could have been avoided with proper planning. The ATO offers tools and resources to help businesses keep track of their tax obligations, so make sure you’re taking advantage of them.
4. Ignoring Tax Planning
Tax planning isn’t just for big corporations — small businesses can also benefit from it.
Many small business owners make the mistake of only thinking about taxes during filing periods. However, proactive tax planning throughout the year can save money and help avoid surprises come tax time.
5. Failing to Register for GST When Required
One of the most common mistakes is not registering for GST when your business crosses the $75,000 threshold (or $150,000 for non-profit organisations). If your annual turnover exceeds these amounts, you must register for GST. Failing to do so can lead to penalties and difficulties in claiming GST credits.
6. Incorrectly Claiming GST Credits
Another frequent error is claiming GST credits on personal expenses or non-business-related purchases. Only GST on business expenses that are directly related to your business operations can be claimed.
7. Incorrectly Reporting GST on Invoices
Mistakes in GST reporting on invoices, such as omitting GST or miscalculating the GST amount, can lead to compliance issues and financial discrepancies.
8. Not Seeking Professional Help
Taxes are complex, and small business owners often wear many hats. It’s tempting to try and handle taxes on your own to save money, but this can lead to mistakes that cost you more in the long run.
Hiring a tax professional or accountant who understands the intricacies of small business taxes can help you avoid errors, ensure you’re taking advantage of all available deductions, and keep you compliant with the relevant legislation.
By taking proactive steps, tax mistakes are avoidable. If you’re unsure about your tax obligations, seek professional help. Call Retinue on 1800 861 566. Peace of mind and potential savings are worthy investments for your small business.
*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.
Protection is only provided for ATO investigations notified to us during the period which you are a client and relating to any tax returns or lodgements prepared by us. Fines includes any penalties and interest that may result from any errors made by us but does not include any additional tax liability that may result from an amended lodgement.
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