Tax time can be a headache for small business owners. Here are 10 hacks to survive the dreaded end of financial year.
1. Access this immediate deduction
Eligible small business owners can immediately deduct the business portion of most assets if they cost less than $30,000 and were purchased and installed between 7.30pm on 2 April 2018 and 30 June 2020. This instant write-off provision can be used for each asset that costs less than $30,000, whether new or second hand, providing a much-needed shot in the arm for many.
This is an ideal time to upgrade your technology and communications (such as computers and phones), so have a think about what your business needs before July 1. This instant tax write-off was recently extended so will be available beyond this year’s tax time, too. Check out the Australian Taxation Office website if you need more information.
2. Scan all your invoices
Keep track of receipts by implementing an invoice scanning app such as Squirrel Street to ensure every single deduction is captured. This means small businesses can scrap spreadsheets and instead take a photo of the claim to be recorded.
3. Share files
Set up a shared online storage folder like Dropbox to store all bank statements, invoices, deductions and contracts for your accountant, advises financial management consultant Brad Turville of BJT Financial.
Carefully name each file and drop these documents into a file that your accountant can easily access and inform them, which can save hours of meetings and emails requesting additional information to do their job, Turville says. Downloading the ATO app on your phone will also help record receipts and log book activity for work-related travel, he adds.
4. Deduct life insurance
Small business owners can receive a tax deduction on their life insurance by simply changing the ownership to super, explains Jarickson life insurance broker Paul Davies, who says most people overlook the fact that whatever is paid towards those premiums can be tax deductible. “As always, you need to take into account if it’s going to be best for you, because everyone is different, and make sure you don’t pay over and above the super cap thresholds.”
5. Review stock and inventory
Set aside time before the end of the financial year to conduct a thorough stock audit to identify damaged or obsolete stock and write it off. Scheduling the time to take an inventory of stock and verifying quantities and the condition of each item will impact the value of the trading stock and also profit margins. It might be best to rope in a couple of helpers and start early in the morning, or at the end of the work day.
6. Hire a bookkeeper
Staying on top of bookkeeping throughout the year is the key to making tax time simpler, according to Mark Chapman, director of tax communications at H&R Block.
The golden rule is that if you can’t substantiate it, you can’t claim it, so those businesses that aren’t organised often lose out on deductions, Chapman says.
“Paying a professional bookkeeper can also mean that you have a better grasp on how your business is tracking and assess if there are financial problems so you can fix them quickly, before they threaten your business.”
7. Upgrade accounting software
One of the biggest game changers for SMEs in the past decade has been the development of cloud-based intelligent software to help businesses manage their financial data, invoicing, HR, payroll and inventory in a one-stop shop, Adam Griffiths, director of dmca advisory says. “Cloud software is also highly collaborative, which means clients can allow their business advisers and accountants to access and work on business records at the same time. It’s also great for compliance,” Griffiths says.
8. Streamline business operations
Look for tools that enable you to manage a number of core business functions all at once. Some of these can help a small business avoid high administration costs and avoid payment delays.
For example, check out ServiceM8, which is a cloud-based software designed to help field service businesses manage all aspects of their work, from a client’s first call through to scheduling, quoting, job management, invoicing and payment. The software also integrates with a number of accounting packages.
Neelum Prakash, General Manager Vodafone Enterprise, says that it is important for business owners to stay organised throughout the entire year. “Small businesses often don’t have the resources to delegate one person to tax-preparation, and the last thing you want to do is sift through a year’s worth of paper in the midnight hours just trying to get organised,” she says.
9. Embrace lifelong learning
You may be able to claim a deduction for self-education expenses if your study is work-related or if you receive a taxable bonded scholarship.
Self-education expenses are deductible when the course leads to a formal qualification and meets specific conditions. These include improving your skills or knowledge, and can result in an income increase, according to the ATO.
Related expenses such as accommodation and meals if away from home overnight, course fees, fares, internet usage and calls could be claimed, so check with your accountant.
10. Schedule a planning session
With tax time behind you, schedule a time to sit down with your accountant for a planning session.
This gives you the chance to look forward to the coming year and assess the most profitable areas of your small business and make some decisions about key areas to focus on during the coming year.
Also ask your accountant for tax saving strategies and look for options to reduce tax and reset to make your business more profitable.
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