It’s a feeling many business owners know too well: the dread of a hefty tax bill. Just as you are preparing to launch into another financial year, the unexpected burden of a large payment to the ATO is a financial blow that limits your cashflow, throws your plans off track and hurts the bottom line.
But it doesn’t have to be this way. According to Retinue Accounting Co-founder Steven Nicholson, many business owners are simply paying more tax than they should.
“Unfortunately, it’s all too common for business owners to get to the end of the financial year, let their accountant prepare their tax return, and be hit with tax bill shock,” Nicholson says. “Oftentimes they’re not getting the timely accounting advice that they need throughout the year, or they have got caught up in the day-to-day running of their business that they have lost track of all of the deductions that they are entitled to claim. “But with a basic strategy and armed with a few simple tactics, business owners can significantly reduce their tax liabilities and preserve the cash they need to hit the next financial year running.”
Let’s look at some practical ways you can reduce your tax bill.
Know your eligible deductions – and claim them
The simplest way to reduce tax is also the most obvious – claim all available deductions. Yet business owners are often so busy running their business that they fall behind on the paperwork, tracking and reporting that can help maximise their deductions come tax time.
Any expense that has been incurred in generating your taxable income should be a legitimate deduction. There are the obvious write-offs including workers’ salaries, utilities, vehicle, and travel expenses, but also additional items such as repair and maintenance costs, depreciating assets and interest on business loans.
“It seems simple, yet too often we see business owners not claiming all of the deductions that are available to them,” Nicholson says. “Don’t leave cash on the table. Get your financial records organised and make sure you exhaust every opportunity to claim a deduction for your business.”
Pre-pay expenses
Small businesses can pre-pay up to 12 months of certain deductible expenses before the end of the financial year (such as rent, subscriptions and utilities), and accelerate the timing of deductions. However, while pre-paying those expenses can be an easy way to reduce your tax bill, you still have to find the cash to pay those costs in the first place. This is where business owners must strike a balance that suits their particular financial circumstances.
“Each business is different, and their financial priorities vary,” Nicholson says. “You have to ask yourself: is saving tax my main priority right now, or do I need to preserve the cash? Consider your particular situation if you are thinking about pre-paying deductible business expenses.”
Claim the Instant Asset Write-Off now
For most small businesses, the Instant Asset Write-Off allows an immediate deduction on the full cost of eligible assets up to $20,000. But there’s a catch – those assets must be first used or installed ready for use before 30 June 2024. If you want to leverage the Instant Asset Write-Off this financial year, you better act fast.
“One of the main benefits of the Instant Asset Write-Off is that it can be claimed multiple times, it doesn’t need to be limited to one asset,” Nicholson says. “A good example would be a commercial kitchen which would require purchasing a number of high-value items that meet the deduction criteria. Rather than purchasing those new appliances in a single transaction, potentially you could purchase them all separately and claim the Instant Asset Write-Off multiple times.”
Defer work
Can you hold off on scheduling a job or piece of work until July? Have you already earned enough for the current financial year? Is it time for a much-needed holiday? If so, by deferring new work to the 2024/2025 financial year you can limit the amount of assessable income subject to tax in this financial year.
“It’s a luxury that may not be available to many business owners,” Nicholson admits. “But it could be an option for some, and worth exploring to help lower your taxable in this financial year.”
Need a hand getting your business ready for EOFY? Get your free guide to Preparing for the End of Financial Year or call Retinue Accounting on 1800 861 566 for a free initial consultation.
