With the arrival of the federal budget and the end of financial year fast approaching, now is the perfect time to commence your tax planning. However, the constant juggling act of managing a successful business versus being a functional member of the family, let alone worrying about everything in between (including getting enough sleep) means time with your accountant talking about the tedious topic of tax, can for some, be not high on the priority list.
But here’s why tax planning is one of the most critical financial functions of any successful small business and some tips on how to make tax planning a valuable business tool.
There is nothing worse than an unexpected bill, especially a tax bill. Many businesses utilise the extended tax return lodgement due date afforded by the Australian Taxation Office. As a result, businesses are not finding out their tax position until up to 11 months after the end of financial year. So this time next year. Without planning, this delay can do one of two things. 1) you needing to find funds to pay your tax bill or 2) time lost with a tax refund you could have had months ago.
Tax planning enables you to calculate an estimated tax position so you can time the lodgement of your tax return to when it is most beneficial to you.
Timing is everything. Your circumstances now may not be the same in the future and too the tax legislation (as we saw in last weeks budget). By reviewing your numbers and your personal situation, you can utilise the opportunities available to you now to significantly reduce the amount of tax you need to pay.
Get Future Focused
Business owners can often feel overwhelmed and on the back foot when it comes to the financial side of business. Being up to date and proactive with the financial aspects of your business gives you the foundations to be future focused and therefore plan for the future, which includes cash flow forecasting and business opportunities. Planning makes business decisions easier because you are clear about the direction you are heading and understand your financial position.
Now you understand why tax planning is important, here are some tips on how to get your tax planning right.
Get Your Accounts Up-To-Date
Making sure you are up-to-date with your bookwork is essential to maximising tax planning opportunities. Using cloud based software such as Xero or Intuit gives you real time data and makes it much easier to get the information needed for effective tax planning.
Review your accounts receivable/trade debtors. Income recognition rules mean you are taxed on total income billed, not paid, so you are being taxed on income in your trade debtor account even though you haven’t received it yet. Identify customers outside your standard payment terms and follow them up or consider whether they are a bad debt.
Business expenses work the same as income. Through the use of your trade creditor account, expenses are recognised on billed date not paid date. This excludes superannuation. So if you know you have suppliers that have yet to bill you, ask for your accounts before 30 June so they can be included.
Talk to Your Advisor
You should be in regular contact with your accountant. Give them a call (if they haven’t called you already) and talk about how tax planning applies to you. Tax planning is one service we provide to all our business clients. Utilise the advice from a true advisor to give you the best tax planning strategies appropriate to you.
No matter how big or small your business is, tax planning is a must for every business. Take a positive approach to understanding your numbers and maximise the tax opportunities where possible. Your business will thank you for it. To continue this discussion with us please contact us to arrange a consultation.
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