Here are my five quick tips to help you remain on top of your finances at tax time and generate long-term benefits for your business:
1. Take advantage of deductible expenses
With significant benefits offered to SMEs in the past two federal budgets, there has never been a more important time for business owners to be across tax-deductible expenses. For example, the previous threshold for instant tax write-offs for depreciable assets was $1,000, but was expanded in May last year to $20,000 until 30 June 2017. Considerable tax savings can be made as a result, especially if you need to make a major purchase in the near future. Some small businesses are even eligible to bring forward deductions on known expenses for the next financial year.
2. Review debtors and write off bad debts
Like many small businesses, you may have accrued bad debt in the past as the result of unpaid invoices. One option to address bad debt is to write it off, and this may provide your business with a tax-deductible 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. 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. Be charitable
Charity contributions might seem trivial, but in 2014, $6.8 billion was donated to Australian non-profit organisations. It is common for businesses, especially community-minded SMEs, to make contributions, which can be tax-deductible. Check your donation is to an organisation with a deductible gift recipient endorsement on the ABN Lookup, and you are able to declare anything above $2. Keep track of your donations and you might find you’ve not only helped someone else but also helped reduce your tax as well.
4. Keep detailed records
Make sure you keep track of your business records. Receipts, invoices and even a decrease in the value of your inventory found during a stocktake can be major sources of tax deductions. Consider using online document management software, which backs up to the cloud and offers secure file sharing. This will protect your business from losing valuable information through a computer failure or misplaced papers.
5. Don’t fear seeking expert advice
If you’re a sole trader or operate a very small business, it can be tempting to take tax matters into your own hands. The simple truth is that if you don’t understand, you should seek advice. An accounting professional may cost money, but in the long run they will help you gear your business towards growth by putting in place a plan to best minimise your tax burden and take advantage of small business incentives.
Clive Rabie is the CEO of Reckon, a software development company that creates accounting and bookkeeping software.