Tax. It is one of those things that can put the mind of small business owner into a whirl, but fortunately doesn’t need to be a headache to understand. Getting to grips with the basics and knowing what is relevant to your business helps to keep it simple and uncomplicated.
Keeping it jargon free and easy, we share the real life advice and strategies from small business owners and industry experts with their 7 top tax tips for small business owners.
1. Get your business structure right
Don’t assume that the way your business operates now is the way it should always operate. If you’re a sole trader, think about incorporating or trading through a trust. There can be tax advantages, and you can help to protect your personal assets by putting your business into a different entity.
2. Take advantage of the $20,000 instant asset tax break
If you’re a small business, you can claim an immediate tax deduction for capital assets, such as plant equipment, computers and motor vehicles which cost less than $20,000 each. Get in quick though – this tax break ends on 30 June 2018.
3. Keep records
We all know tax can be hard, but you’re making life more difficult for yourself and your business if you don’t keep records of all your income and expenses throughout the year. Leaving it to Tax Time to try to reconstruct what you did earlier in the year is a recipe for stress!
*Tip 1, 2, 3 Supplied By Mark Chapman, Director of Tax Communications for H&R Block Australia.
4. Be sure to keep records of your tax
You generally need to keep tax records for five years. You also need to be able to support any claims being made in your BAS with written evidence. Written evidence may include tax invoices and receipts. For any expenses that are being claimed which exceed $82.50 (including GST), a tax invoice is essential.
5. Pay your GST ASAP
If you are not able to pay your GST debt by the due date, it may be possible to organise a payment arrangement with the ATO. This can be achieved by contacting the ATO on 13 28 61. Please note, it is likely that the ATO will still charge interest on the payments that are overdue and as such, it is always a good idea to make payments towards the ATO as soon as possible.
*Tip 4, 5 Supplied By Nigel Stivala, Senior Manager of Airtax at PWC.
6. Let your home cut your taxes for you
Start or revitalise any one or more home businesses of your choice by zoning off your home, so that any internal and or external unrequired areas for personal use are transformed to display the character of ‘a place of business’. Next, claim the interest on your home loan as concerning to the new business use percentage you have created.
Make sure to also include: the same percentage of water and council rates, building insurance and depreciation of the building itself, which can be found in a specialist taxation depreciation schedule. Additionally, repairs and maintenance of these areas are fully deductible and improvements can be written-off over time. Furniture and effects in these areas can also be claimed as plant and equipment. All this can easily total several tens of thousands p.a. in new deductions without necessarily spending any more money.
By applying a few simple strategies, you can cut a lot of tax every year!
7. The “having your cake and eating it too” strategy
My extensive research indicates most accountants advise against claiming home mortgage interest for fear of potentially copping CGT, however, your principal place of residence is capital gains tax (CGT) free at the time of sale if it hasn’t been used to produce assessable income.
This is an anomaly. However, the minute your home becomes a place of business; it also becomes an assessable CGT asset. Generally speaking though, you may utilise the small business CGT concessions at the eventual sale of your home to minimise or negate any CGT that might arise.
This is a “having your cake and eating it too” strategy as you reap massive year on year deductions and pay little or no tax at the other end. When done smartly, you can use the strategy to own your home sooner or to improve, extend or upgrade it, all heavily subsidised by the tax system.
*Tip 6, 7 Supplied By Frank Genovesi, Principal at Intellisolve.
We hope that these tips and tricks will help make tax time that little less stressful. Some of the key take aways to remember:
- Over time business structures can change
- It’s important to stay in control of your tax records to avoid getting confused and overwhlemed at tax time
- Look at strategies like using your home as a way to cut taxes
If you play it smart, there are lots of valuable ways that you can use tax deductions to improve your tax return. If you are ever in doubt and not sure about what you can deduct the best thing is to consult the advice of your accountant or tax agent. Do you have a real-life tax deduction you would like to share?
“The opinions expressed by BizWitty Contributors are their own, not those of BizCover and should not be relied upon in place of appropriate professional advice. Please read our full disclaimer."