Tax Planning 101
I can’t believe the end of the financial year is only a few weeks away! If you’re like me and would rather spend your money on shoes than taxes, then here are my easy tips to save tax and to have more money in your bank account.
The first four tips are available for small businesses only (turnover of less than $2 million) while the rest apply to all business owners as well as some tips for individual tax returns.
1. Buying Assets: Thanks to the recent Federal Budget, if you’re a small business, you can write-off in full any asset that costs up to $20,000. So if you know you are needing to buy equipment or computers in the next few months, consider bringing forward the expense before 30 June
2. Delay invoicing before 30 June: If you know that a customer pays you promptly and you will receive the money before 30 June then delay invoicing until 1 July
3. Incur Expenses: Many small business owners think they need to pay for an expense in order to receive a tax deduction but all you need to do is incur it. So order any equipment, stationery, materials that you need and make sure you receive the bill dated on or before 30 June
4. Prepay expenses: Prepay expenses such as rent or insurance for up to twelve months.
5. Stock on Hand: If you have slow-moving stock then consider writing it off prior to 30th June. For the rest of your stock, you have the choice of valuing it at actual cost, replacement cost or market value so make sure you choose whichever will give you the lowest price
6. Pay super: If you have staff, pay their superannuation before 30th June to receive a tax deduction this year and make sure you pay super for yourself. Too many business owners risk not having enough super upon retirement. My rule of thumb for how much super you should be paying for yourself? The amount that would be paid if you were to go and get a job. So if that income would be $150,000 then you should be paying at least $14,250 per year
7. Write off Bad Debts: If you know you’re not going to get paid, then write off the debt before 30 June
8. Revisit your Structure: Is your business in the most tax effective structure? If you are a sole trader then you have no choice but to pay tax on all the profits of the business whereas this is not the case for other structures such as partnerships, companies or trusts.
9. Book-keeping: If you are using a software based book-keeping system or dare I say it, a spreadsheet then make your life easier and checkout a cloud based solution such as Xero. Using a cloud based option will save you time, money and help you keep track of where your business is up to.
10. Superannuation cap: Many business owners rely on the sale of their business to fund their retirement and don’t use superannuation effectively. Consider contributing up to the maximum of $30,000 to ensure you have enough funds for retirement and to receive a tax deduction. If you simply can’t tolerate the concept of superannuation, then perhaps consider Self-Managed Super
11. Logbooks: Make sure your log books are up to date. For motor vehicles this means your log book needs to be less than five years old.
12. Claim everything you are entitled to: Make sure you know what you can claim. For example if you are on the road for work (or work outside) you can claim sunscreen so if your foundation, lip-balm or moisturiser has an SPF factor then you may be able to claim it.
13. Credit card/Eftpos your Expenses: If you are an individual taxpayer the ATO now recognises credit card and bank statements as receipts so if you are shocking at keeping receipts then make sure you use credit card or Eftpos for your expenses
14. Wealth Creation Strategies: Consider property, shares and of course the tax implications of negatively geared shares and property
15. Rental property: If you have a rental property and also a mortgage on your home then make sure you are paying interest only on your rental property to maximise your deduction. If you property is less than 40 years old you should also be claiming depreciation on the building and the fixtures. To organise one contact a quantity surveyor (This cost is also tax deductible)
16. Capital gains: If you made a capital gain this year on the sale of shares or property and are carrying some poor-performing shares (which many of us are) then consider selling them prior to 30 June so that your capital loss can offset some or all of the capital gain.
Saving tax is a little like trying to find the perfect pair of jeans – it requires research and a little bit of legwork but if you’re willing to put in the effort you will have a great result. If you don’t then you really can’t complain.
My suggestion is to pick one or two things that you can easily do before 30 June and then as a modern-day philosopher once said, just do it. Of course if you need more help make sure you call your accountant.