As tax time approaches, you may feel concerned about your tax burden. The good news is that there are many tax minimisation strategies that you can use to reduce your bill. These proven methods are legal under tax codes and simple to use, but many entrepreneurs simply don’t know that they exist. This guide contains these tax-reducing strategies along with tips for tax planning.
6 Ways to cut down your tax bill:
- Prepay deductible expenses
There are many expenses that business owners can use to reduce their taxable income thus reducing tax payable. In some cases, you can prepay these expenses so that you realise even larger savings on your taxes. Examples of possible deductions include home office supplies, loan interest, commercial rent payments, tools or equipment. Expenses are only deductible if they’re directly related to your business, and you must keep a record as proof.
- Pay super before June 30th
You can only claim superannuation expenses as a tax deduction for the year that they were actually paid. So make sure your June quarter Superannuation expense is paid by 30 June to claim the full amount.
- Bring forward equipment purchases
Like other business tax deductions, you can bring forward your equipment purchases to reduce your current tax burden. This is especially helpful if you know you’ll be buying a large piece of equipment for manufacturing or production. (Make sure you speak to your accountant before doing this!)
- Donate to a charity before June 30th
Charitable donations are also tax deductible. If you’ve been planning to donate to an important cause, make sure to donate prior to the June 30 tax deadline. Get a receipt for your donation and keep it in your files for recordkeeping. Ensure your Charity has a DGR (Deductible Gift Recipient) Status here, only donations to charities with this status are eligible for tax deductions.
- Review outstanding invoices owed to you
Do you have monies owed to you? Unfortunately, some of these debts will never be collected, so these need to be shown as a Bad Debt expense on your profit and loss.
- Check your business structure
Your tax obligations are heavily dependent on your business structure. There are four basic ways to set up your business – sole trader, company, partnership, or trust. Sole trader is the simplest, while companies and partnerships can be a little more complex. Your tax burden can vary dramatically with each structure, so be sure to review your current setup with a tax professional to see if anything should be changed.
The Importance of Tax Planning
Tax planning is one of the best tax minimisation strategies for any entrepreneur. This process is usually done with your accountant. The purpose is to project your tax burden and to ensure that you’re staying compliant with relevant regulations. At a basic level, the process involves:
- Estimating tax payable for the year: Taxes are an ongoing expense for any business owner. You don’t want to end up in a situation where you’re unprepared to pay a tax bill. On the flip side, there’s no point in using minimisation strategies if you’re already projecting a loss.
- Reviewing strategies for your individual situation. Every business is different – sometimes you’ll be cash-heavy with plenty of resources to cover your tax bill, and at other times, you’ll just be getting by. An accountant can analyse your finances and determine a course of action that suits your current needs. Doing this early allows you to plan ahead for any upcoming tax liabilities.
- Evaluate your quarterly/monthly pre-tax payments. Many business owners make quarterly or monthly payments during the year. If your payments were sufficient to cover the tax payable on actual profit of your business, then you won’t have a balance on your yearly taxes – and you might even receive a refund. However, if you didn’t pay enough during the year, you’ll have a bill for the remainder of the balance owing.
Don’t delay tax planning: contact Vibrant Business now!
Tax planning is key for managing your business finances. If you’re still working on taxes, now is the time to let Vibrant Business help with your financial concerns so that you can focus on other tasks.
We can take care of all of your business financial needs from basic bookkeeping to advanced tax planning. Additionally, we offer coaching and mentoring to help you achieve your business goals.