With the clock ticking down towards the end of financial year (EOFY), now is the time to get your business tax affairs in order.
Being well prepared before 30 June, including knowing exactly where your business stands from a profit and loss perspective, will have important tax implications for the current financial year.
Indeed, many business owners end up paying more tax than necessary simply because they have not kept accurate records of their deductible expenses during the year, while others miss out by not knowing what they are legitimately eligible to deduct.
The following five steps are an end-to-end business owner’s tax guide for the EOFY.
Step 1 – Get Your Paperwork in Order
Business owners should be keeping an ongoing track of their income and expenses throughout the year, but sometimes the task of running a business gets in the way.
Now is the time to go through all expense receipts and log them, if that hasn’t already been done, and to record all income received during the financial year. It’s also important to keep track of all accounts receivable and payable, so they can be followed up before 30 June and included in the financial year’s accounts.
Step 2 – Maximise Your Deductions
If you are unsure of exactly what deductions you can legitimately claim, it’s a good idea to contact your accountant before making any purchases and to organise a face-to-face appointment with them well before 30 June so you have time to organise your tax affairs.
The period before 30 June is a good time for business owners to review their needs in terms of plant and operating equipment, and to purchase any items required before EOFY so they can be booked through as expenses in the current tax period.
Items that can be deducted include anything needed for the ongoing operations of the business, from office equipment through to plant and motor vehicles.
The federal government announced in the 2015 Budget that the instant asset write-off threshold would increase from $1000 to $20,000 up until 30 June 2017, allowing businesses to immediately deduct the business use portion of depreciating assets that cost less than $20,000.
Step 3 – Plan Ahead for Next Year
When it comes to tax preparation, planning ahead into the next financial year is essential when it comes to managing deductions and tax liabilities.
For example, prepaying known expenses due in the following financial year before 30 June can be beneficial for a business wanting to reduce its tax liability. These can include motor vehicle or other regular lease and loan payments on plant and equipment, which can be paid before 30 June and fully deducted as expenses in the current financial year.
Step 4 – Getting It All Recorded
These days, most businesses input their income and expenses into accounting or other software continuously so they can readily complete and lodge their business activity statements and hand all their files for the financial year over to their accountant after 30 June.
Those who haven’t done that need to get cracking now so that all revenue and deductible expenses are accurately recorded.
Using a bookkeeper to manage these tasks throughout the year makes a lot of sense, and it’s not too late to engage one to input all your data to make the whole process less time-consuming for you.
Step 5 – Lodge Your Financial Accounts
It’s now after 30 June and, having followed all the steps above, you’re effectively ready to begin the process of lodging your accounts with the Australian Tax Office (ATO).
If you are planning to do this yourself, you need to be aware of all your reporting obligations and the forms that need to be completed and lodged with the ATO by specific deadlines.
If you are unsure about your obligations or where to find online tax forms, visit the ATO website.
Of course, unless you know exactly what you’re doing in preparing your financial accounts, lodging your own business tax return is risky. The ATO will apply penalties to those who lodge inaccurate returns, or who miss key reporting deadlines.
The best solution is to use a registered tax accountant who will prepare your returns based on the information in your accounting software files. Check out QuickBooks Online for more information.