Small business tax planning: A checklist of what to do at tax time

Tax time can be a stressful period for Australian small business owners. The fear of making mistakes and facing the tax consequences from the Australian Taxation Office (ATO) can take a toll on any business owner. But with proper planning and preparation, small business owners can navigate tax season with ease and minimise their tax liability.

Small business tax planning involves taking proactive steps to reduce tax liability and optimise tax benefits. In this article, we’ll explore the essential steps small business owners should take to prepare for tax season, so an end-of-financial-year checklist for small business activities is a great way to keep up to date.

The importance of small business tax planning

A small business tax planner is crucial for several reasons. First, it helps you stay organised and avoid any last-minute scrambling of business records to get your taxes in order. Second, it can help you identify areas where you may be able to save money. 

For example, you may be able to take advantage of deductions or credits that you didn’t know about before. Finally, planning can help you avoid some costly penalties for late or incorrect filings. Stay ahead of the game and ensure your business stays on track financially and legally. Your accountant will be sure to thank you, too!

Understand your business structure and tax obligations

Before you can start planning for taxes, it’s important to understand your business structure and business tax return obligations. Different structures have different tax requirements. For example, a sole trader is taxed differently than a company, which is why the former may benefit from making PAYG instalments as opposed to a company. Some MyBudget clients have even found that making PAYG instalments throughout the financial year helped them to avoid any bad tax debts.

Make sure you understand the tax laws that apply to your company structure and stay up-to-date on any changes. This will help you avoid any surprises come tax time and ensure that you are taking advantage of any allowable deductions or credits available to you.

Below, we’ve outlined a few ways to best prepare for that trip to the accountant:

Keep accurate records throughout the year

The first step is to keep accurate business records throughout the year. There’s nothing worse than getting to tax time and having to rummage around for papers dated nine months ago. This means keeping track of all your business expenses, taxable income, voluntary superannuation contributions and receipts.

You can use software like MYOB or Xero to help you keep track of your finances, or you can use a simple spreadsheet. Whatever method you choose, make sure you’re consistent and diligent about recording your financial information. This will not only make tax time easier, but it will also help you manage your business finances more effectively throughout the year.

Whether you use business accounting software or just simply keep it all in a folder, be sure to keep every:

• Receipt
• Invoice
• Statement
• Employee records
• Record of creditor and debtor payments
• Business-related purchases
• Motor vehicle expenses
• Super contributions

Having multiple copies can also help for peace of mind and depending on how you best operate, consider keeping both physical and digital copies.

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Update who owes whom

If you’re waiting to be paid for an invoice, or if you have yet to pay an invoice yourself, having comprehensive cash flow management recorded and documented will make your small business tax accountant’s life much easier.

For example, let’s say you’re still waiting on an invoice payment from Jack for a job you did last month, but you also need to pay Jill’s invoice for a job she did for you three months ago. You’ll want to have both of these, and any others, accounted for and documented.  

This is known as accounts receivable and accounts payable, and recording this in addition to what has physically entered and exited your accounts will provide you with a more holistic view of your finances.

Australian small business tax deductions

Consider making a list of every active asset/expense you’ve had to pay for (this ties back to receipt-keeping that we previously mentioned). If you work from home either full-time or periodically, you may even be able to claim some home expenses. Having this information prepared and documented will help your accountant determine the right tax deductions for your business. The ATO website provides a comprehensive resource to help with income and deductions for business tax purposes that may be worth a look-see.

While you’re paying your accountant a visit for some professional advice, you may also want to discuss instant asset write-off for eligible businesses. Being able to claim immediate deductions on depreciable assets for businesses may save yourself a lot of money in both the short- and long-term.

Inventory stocktake

This point depends on whether your business carries stock or not. If it does, it might be worth undertaking  a company-wide stocktake by 30 June and provide to your accountant. This will ensure that your records and trading value are accurate, keeping that tax-time headache down to a minimum.

Asset depreciation

Much like our creaking knees, business assets may depreciate in value as the years go by. These eligible assets for businesses are most commonly machinery, tools, computer equipment, etc.–all items that are reasonably expected to deteriorate over time. Be sure to discuss this with your accountant on your next visit.

If your small business has an annual aggregated turnover of less than $10 million (or $2 million for previous income years), you may be eligible to use the simplified depreciation rules. It includes the aforementioned instant assets write-off as well as a general small business pool which uses simpler calculation methods for depreciation deductions.

Tax concessions

You may also be eligible for tax concessions if you’re deemed eligible as a small business entity. Many of these concessions are dependent on your business’s annual aggregated turnover, as well as the type of Australian business in which you operate.

The ATO website contains small business concessions that you may be eligible for depending on the business entity type you operate, so it’s certainly worth taking a look over and jotting a few notes down to bring up at your next business accounting meeting.

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Registering for GST

If your business has an annual turnover (or projected annual turnover) of $75,000 ($150,000 for non-profit organisations), then you’ll likely need to register for Goods and Services Tax (GST). Not doing so can result in penalty fines, interest charges and backdated GST charges.

Be sure to also cover this with your business accountant as it is a crucial factor when considering business growth and scaling.

Tax planning for the future

Tax planning strategies are always something to consider in every facet of your business. If you’re finding yourself stressed and unprepared every year as the calendar gets closer and closer to 1 July, it’s time to consider some tax planning options.

Setting aside some automated tax savings from every pay can ensure that you’re prepared for whatever the ATO throws your way, even for when your filing your own personal income tax return. MyBudget can help automate these savings, allowing you to rest easy knowing that a consistent portion is being put aside while you work towards your financial goals and business goals. For more information, give us a call on 1300 300 922 or enquire online.