Running a business is time-consuming and sometimes even things like strategies to reduce your tax are overlooked in the rush. Here are 11 tax planning tips to get you started!
With every year’s tax tally, there are opportunities that you really should take hold of, and the process does not need to be difficult either.
Read this list of small business tax strategies and consider how you can plan more effectively month by month – without extra fuss – so you end up pleased and paying less tax overall.
#1. Income
Did you know that you potentially have the option to defer a portion of income and with it, the tax payments that are associated with it? This, of course, means more cash in your pocket for longer to help with cash flow or investments.
#2. Realising capital losses
If you have collected some capital gains through the course of the year, one way of minimizing tax owing is by allowing some losses on shares you feel you don’t need to hold any longer.
#3. Writing off bad-debt
This suggestion brings mixed feelings from business owners, but if you’ve taken all possible steps to collect an outstanding debt and it is not forthcoming, then it’s worth remembering that you can receive a tax deduction for writing these amounts off!
#4. Small business entity test
Another important rule change recently is in regards to the small business entity test. Businesses that have turnover (and group turnover) of less than a specified amount are generally allowed to participate from numerous tax relief options that help small businesses.
#5. Accrual to cash conversion
If you have a high percentage of debtors, an opportunity to improve your cash flow with your GST could lie in converting from an accrual basis to cash.
#6. Expense pre-payments
Traditionally prepayments for expenses would be a capital loss on your balance sheet with no deductions permitted. Under the small entity rules however, you may be able to secure an upfront deduction! Rules on prepayment write-offs generally revolve around the amount prepaid and the period over which the prepayment runs hence these may not always be possible.
#7. Expenses
You have the opportunity to accrue wages that you have not yet paid to your employees. Since you’ve have incurred these expenses you are entitled to a tax deduction. This primarily stems from the accrual basis that most businesses represent their financial statements and records and aids to make accounting for relevant expenses easier for the taxpayer.
#8. Depreciation
If you have equipment that’s written up to represent a higher value than is actually the case, or if you are no longer using the equipment, you have the ability to write this off and receive a deduction in kind.
#9. Inventory
If you have slow-moving inventory or stock that is earmarked to be written off, now is the time to do it, and simultaneously cash in the tax advantages. Obsolete inventory write-offs also aid in lowering holding costs for businesses in some segments, which ultimately improves profitability.
#10. Tax and cashflow
An important focus of our tax planning process is that of cash flow planning. We encourage businesses to understand the timing of tax payments and that of tax installments. Adequate cash flow planning involves an in-depth understanding of outflows and inflows into the business, this, in turn, helps with avoiding penalties and unnecessary interest fees.
#11. Single touch payroll
Single Touch Payroll gives a facility for businesses to start paying directors a dividend instead of a wage. Largely used in Australia, adoption of the system will roll out globally over time
These are just a few areas worth paying attention to in your business.
While not all of these strategies will work for every small business, hopefully, this list has helped you consider the advantages of tax planning. It’s vital to maintain a strong focus on planning to optimise your tax position so your cashflow wins. Remember, the amount of tax you pay is not a fixed rule, written in stone. Rather, it’s a matter of getting the right advice and support so you can understand the ways available to you to legally reduce your tax obligations.