I started up my own business this year as a sole trader and it’s been going really well. Someone asked the other day if I had done my tax planning, but I don’t know what they are referring to! Is tax planning something a small business operator like me needs to worry about?
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Tax planning is the process of putting in place legitimate strategies to reduce the amount of tax you pay each year. Given the potential cash savings, tax planning is important for most small businesses.
The best time to start tax planning is a few months before June 30. This will allow you to see how your business is tracking financially, and if you’re going to make a profit, you have time to implement tax-saving strategies.
The ATO website has a calculator that will estimate your tax, after you input your taxable income. Your taxable income is generally your income less any allowable tax deductions, such as expenses, depreciation etc.
One tax-saving strategy is to bring forward expenses you may have otherwise made after June 30. This could include purchasing business assets such as equipment or machinery under $20,000, to claim an immediate tax deduction.
However, as of July 1, the $20,000 you can now claim as an immediate tax deduction will be reduced to only $1000. So if you’re thinking of buying equipment that costs less than $20,000, do it before June 30!
Your small business can also claim an immediate tax deduction for certain prepaid business expenses relating to the next 12 months. Examples of these expenses include repaying your lease payments, interest or insurance.
Importantly, these prepayments must be required under a contractual agreement, such as a lease or bank loan, rather than just choosing to prepay 12 months of stationary.
Some other tax-saving strategies include scrapping obsolete stock or equipment and writing off any debts you don’t think you will recover, so long as the amount has been previously included in assessable income.
To create tax saving strategies that are specific to your business, you should consult with your tax agent or accountant.
If you would like more information on this topic or have another tax question e-mail me at tax.albury@crowehorwath.com.au.
Any information in this article has been prepared without taking into account your personal circumstances. You should seek professional advice before acting on any material. While reasonable care is taken in the preparation of this information to the extent allowed by legislation, Crowe Horwath (Aust) Pty Ltd ABN 84 006 466 351, accepts no liability whatsoever for reliance on it.
