As the calendar flips around to 30 June, end of financial year is upon us again – and time is running out for small businesses.
If you have been procrastinating on your taxes until now, here’s some 11th hour advice to help get your tax affairs in order and remain on top of your finances. While early planning and being organised is best, it is not too late to maximise deductions as part of effective tax planning and try to shift old stock.
1. Take advantage of tax deductable expenses
If you’re an SME with an aggregated turnover of up to $10 million, and thinking of purchasing a piece of equipment before 30 June 2018, keep in mind you can immediately deduct the cost of eligible assets up to $20,000.
SMEs should also be aware they are entitled to bring forward deductions on expenses for the next financial year, known as prepaid expenses. This is available where those services will be provided within 12 months of the date of expenditure. Deductable expenses would normally include items such as – office supplies, stationery, insurance and rent.
Certain types of expenditure are excluded from prepayment rules, including amounts of less than $1000 and payments of salary and wages. It’s worth evaluating your business profits and seeing if taking a deduction in advance is beneficial.
2. Review debtors and write off bad debts and review debtors
Like many small businesses, you may have accrued bad debt in the past as the result of unpaid invoices. One option in addressing bad debt by end of financial year is to write it off, this may provide your business with a tax deductable expense.
The amount owing must be 12 months overdue to be classified as bad debt and the debt must be written off during the year. However, make sure you try all options for collecting your Accounts Receivable balance before deciding to write off bad debt as it will impact your profit.
3. Give a little
Charity contributions can be tax deductable, so the run-up to end of financial year is the ideal time for small businesses to think about making a difference to a worthy cause. Check your donation is for an organisation with a deductible gift recipient (DGR) endorsement on the ABN Lookup, and you are able to declare anything above $2. Keep track of your donations and you might find you have not only helped someone else but also helped reduce your tax as well.
4. Keep detailed records
Have a system place to keep track of receipts, invoices and even a decrease in the value of your inventory found during a stocktake. Remember, the ATO requires businesses to keep records for at least five years.
If you’re using online accounting software, record keeping is easy as it backs up to the cloud. This will protect your business from losing valuable information through a computer failure or misplaced papers.
5. Ensure BAS, employee wages and super are up-to-date
If your business is registered for GST, you need to make sure your business activity statement (BAS) information is up to date. If you have employees, now is a good time to complete their pay-as-you-go (PAYG) tax reconciliations, and ensure their superannuation contributions are up to date.
Remember, super is not tax deductible until it has been paid, so it is important to ensure all super contributions for employees are completed by the end of the financial year. For more guidance, see the ATO’s example on how timing of super payments affects the claim year.
Sam Allert, Managing Director – ANZ, Reckon
