Tax planning – a MUST for small business owners!
At this time of year, I like to remind our small business clients of the importance of projecting your tax position prior to 30 June.
Why before June 30?
For individuals and the majority of Australian small businesses, tax is payable on a “cash” basis. What this means is that you pay tax only on what monies you’ve actually received from customers less tax-deductible expenses you’ve actually incurred. The point is – you don’t pay tax on your accounts receivable and you can’t claim a deduction for your accounts payable.
By May/early June, you’ll have a relatively clear picture of what your final net profit should look like come the end of the financial year. What this means is that you’ll be able to get a rough gauge of your overall tax position. Having this knowledge then provides the basis on which you can then make legal decisions prior to June 30 around ways to minimise your expected tax liability.
Considerations to reduce an expected tax payable:
➡️ Could you pay some of your 2024 financial year expenses early (e.g. rent, insurance, subscriptions, or even suppliers)?
➡️ Would you consider postponing some of your invoicing to July?
➡️ If you have spare cash that you consider long-term savings, why not contribute it to your superannuation fund?
➡️ The $150K instant asset write-off is coming to an end (more info to come on this as it is released). So, if you need an asset – grab it now while it is still fully tax-deductible.
It is important to note that it may not always be worth incurring a cost now, just to save on some tax down the track. For example, if you don’t really need an asset now, or any time soon, then there is no sense in incurring (or example) $100 now – in order to save $30 in tax later.
If you’re not expecting a tax liability this year, but you’re pretty confident that your business will grow and incur significant net profits next financial year, you may consider the following:
➡️ Bringing forward any invoicing planned in the new financial year to the current financial year.
➡️ Paying your expenses as late as possible / asking to pay them in the new financial year where applicable.
➡️ More aggressively chasing older accounts receivable now rather than holding off until the new financial year.
Planning for your upcoming tax return can be relatively simple or quite complicated depending on your current situation and business structure. Our team are now taking 2023 financial year tax planning appointments. To secure yours, don’t hesitate to get in touch with our friendly team!
