Tax Time Tips
End of financial year is fast approaching, here are some tips to think about before 30 June.
Being business owners, we all know and understand the benefits of being organized in our day-to-day operations. But we also understand that sometimes the business and other things get in the way of that organization. So, this note is for all of you out there who can see the 30 June horizon rapidly approaching, maybe are not as organized as you would like to be need a gentle nudge to get things moving.
Get your record keeping in order
It’s never too late to suggest you keep better tax and accounting records. Keeping accurate and timely records on a regular and consistent basis makes perfect sense. It will help you to understand how well you are tracking and good information is the cornerstone you need for making future decisions on your business operations. If your records are up to date, filed in an orderly and systematic way such that you know where all your essential information is, you should be able to get some management accounts prepared quickly. And apart from it being the law that you keep proper accounting records, your accountant will appreciate the effort as well.
Get a set of management accounts prepared to 30 May 2018
Now, if you haven’t prepared a set of management accounts up to the end of May then this is the first thing I suggest you do. Your management accounts to the end of May will give you a pretty good guide to what your end of year results might look like. And these are what you can use for some clever tax planning before the end of the year.
Do your May accounts suggest you are on track for a likely profit? Or are they indicating a loss? Depending on what they show will assist you with what to do next.
No one should pay any more tax than they legally have to
The late Kerry Packer, while being examined at the 1991 Print Media Inquiry, rather famously stated: “Now of course I am minimizing my tax and if anybody in this country doesn’t minimize their tax they want their heads read because as a government I can tell you you’re not spending it that well that we should be donating extra.” I’m going to go out on a limb here and suggest that his words ring as true today as they did back then.
If your May accounts suggest that a profit is likely at 30 June, then here are a few things you can consider.
- Perform a stock take. Identify any old or obsolete stock and dispose of it. Old and obsolete stock sitting around your shop or workplace is costing you money. It’s taking up space and impacting upon your working capital. The best bet is to discount it and sell it, but if you can’t sell it, write it off. You will only be able to claim a tax deduction for the write off of stock in the year that actually do it. So that means physically write it off before 30 June.
- Review your debtors. Any bad and doubtful debts should also be physically written off before 30 June.
- If your aggregate business turnover is less than $10million then the ATO will consider you to be “Small Business Entity”. As a small business entity you are entitled to use the Simplified Depreciation – Immediate asset write-off rules. Under these rules you can immediately write-off, or claim as a tax deduction, the full cost of a depreciating asset in the year that you buy it, so long as the asset is bought, used or installed ready to use before 30 June.
- The instant asset write-off threshold is currently $20,000, but at the time of writing this article, it will only be $20,000 until 30 June 2018. After that date it will revert to it’s original amount of $1,000.
- If you are employed by your business, consider making an additional payment to your Superannuation account up to your concessional cap limit.
Step back and take a good look at your business
Sometimes you need to step back and look at your business from a different angle. How does it look? Are your finances appropriate for your stage of business? Might you require an overdraft for a short period of time or have you had an overdraft that should possibly be converted into a term loan?
The end of financial year gives you an opportunity reflect on these things, take your accounts to your bank and discuss where to next.
You might also want to have a look at your insurance policies. Are the levels of coverage appropriate for your business? Are the premiums you are paying reasonable? If you don’t engage the services of an insurance broker, then it’s something worth considering. Remember that a broker works for you, not the insurance companies.
And finally, why not have a look at your business goals for the next year. What are your goals? Are you achieving your goals? If the goals are moving are you adapting to the change? Are you maximizing the opportunities that are coming your way?
Get your accounts together and go and talk to your accountant. You should always get the advice of your accountant or tax agent before making decisions that impact on your tax situation. Remember that your advisors are there to protect your interests and maximize your returns. Don’t think of them as a cost, think of them as a business asset to be used for your benefit!