The end of financial year is often a tricky time for small business owners, who are already time-strapped. Fortunately, if the recently announced Federal Budget is anything to go by, the Australian government is on the side of small business. Along with the potential savings you could make in tax concessions and cuts, there are a number of other strategies you can apply to minimise the amount of cash you have to hand over. Here are 5 smart and simple ways you can pay less tax.
1. Claim everything you can
Any business expenses you claim reduce your assessable income and lower the amount of tax you have to pay. According to the Australian Taxation Office (ATO), you can claim a deduction for most expenses as long as they’re directly related to your running your business. This includes operating expenses, such as wages, rent, utilities, and advertising, and capital expenses, such as equipment, machinery and vehicles.
To claim a deduction, you’ll need to include the item in your return with a receipt or proof of purchase. The ATO makes some allowances for receipt-free tax deductions, but only up to the value of $300. If you struggle to keep your records in order throughout the financial year, it might be a good idea to consider using accounting software that lets you snap, store, and organise receipts on your phone.
2. Bring expenses forward
From business insurance and rent, to subscriptions, phone bills, and overseas travel – there are several expenses you can pre-pay to bring your deductions forward to this financial year. To take advantage, the pre-paid expense must be less than $1,000 or meet the 12-month rule. Using the 12-month rule you can claim an immediate deduction for pre-paid expenses if the payment is for a service that doesn’t exceed 12 months and ends in the next income year.
If you expect the agreement or provision of service to be delivered in full this year, prepayment rules won’t apply. It’s important to note that this strategy only works if your cash flow is positive. Putting your cash flow in jeopardy for the sake of a small tax advantage is a dangerous move.
3. Add to your super
Put a portion of your salary or bonus into your superannuation as opposed to your savings and you may be able to claim your investment as a tax deduction. This deduction only applies if you made the contribution to a complying super fund and you meet the age restrictions – currently 75 years and under. If you’re aged between 65-74 years, you’ll need to satisfy the work test to claim a deduction. It’s worth noting that concessional super contributions (all pre-tax contributions to your super) are capped at $25,000 so you’ll need to stay within these limits.
4. Write off bad debts
Bad debts (debts that can’t be recovered) are a small business’s nightmare. Whether they’re the result of insolvency or simply a case of someone not paying up, they can create serious cash flow problems. But, there is a silver lining. The ATO allows you to write off some bad debts as an allowable deduction – so long as the amount was included as assessable income in the present (or a previous) income year and remained unpaid for over 12 months.
A bad debt is still considered a loss and is, essentially, money out of your own pocket, so make sure you’ve exhausted all other avenues of collection before you write it off.
5. Stocktake for damages
Regular stocktaking is crucial. It tells you if you’re meeting targets, streamlines your ordering and helps you identify any damaged or obsolete items. Depreciated stock you do turn up can either be written down in value or written off completely. This brings down the value of your trading stock and reduces the amount of tax you pay.
While you can’t avoid doing your taxes, you can legitimately reduce what you pay. Claim everything you’re entitled to, manage your deductibles, and look closely at your debt, stock, and assets to keep a little more profit in your pocket.