Although it may not be your favourite time of the year, tax time is the ideal time to take stock and evaluate the past 12 months, while putting in place a clear strategy for the future. Here are some helpful steps to avoid that tax-time stress:
The annual chores: record keeping, compliance and books
As a small business owner, it's important that you complete a number of bookkeeping tasks by the end of the financial year. Here are the necessary jobs before 30 June.
Profit and loss statement. As well as telling you how much real profit you're making, a profit and loss statement can help you develop new sales targets and a suitable sales price for your goods or services.
Stocktake. It's important to do a stocktake in order to claim deductions. You should do one as near to the end of the financial year as possible.
Record of debtors and creditors. A good record-keeping system gives you better control over your cash flow and enables you to follow up on overdue accounts, as well as keep on top of which accounts you need to pay and when.
Asset purchases. Organise records of asset purchases or expenditure on improvements to calculate depreciation expense claims and for capital gains tax purposes.
Completing an income tax return. You'll need to provide information including a bank reconciliation report, balance sheet and trial balance, general ledger report and payment summary.
PAYG withholding payment summary annual report. You'll need to provide payment summaries to your employees by the due date. As well as lodging yearly reports for PAYG withholding, you'll need to lodge returns for fringe benefits tax (FBT), goods and services tax (GST) and the taxable payments reporting system.
Superannuation requirements. As all employees are covered by the superannuation guarantee legislation, these payments should continue as they do any other month in the year.
Some things to also consider when handling tax
What tax deductions can I claim?
There are several things that are tax-deductible for a small business owner, some less obvious than others, which is why it's important to do your homework. Once you know what you can claim back, it's important to keep records of the things you know are tax-deductible. The list below might surprise you:
Business insurance. As long as you can prove that they are connected to your ability to earn an assessable income, the premiums you pay for business insurance are tax-deductible.
Income protection insurance. Your income protection insurance premiums may be tax-deductible if bought as a standalone policy. You can claim expenses as a tax deduction if they are incurred in the generation of their assessable income and are not of a capital, private or domestic nature.
A website. If you incur expenses creating a website for your business, you may be able to claim the costs back.
Vehicle and travel expenses. This can include things like fuel and accommodation allowances when travelling away from home. Just remember to keep records of your travel expenses.
Operates at home. These are generally home office running expenses like phone and Internet expenses.
Machinery, tools or computers. For any asset that helps earn your income, you can claim a deduction for some or all of the cost.
Using an agent
Make sure your tax agent is registered with the Tax Practitioners Board (TPB). Using an unregistered tax agent is a risk you want to avoid.
Changes in the law
Keeping up-to-date with changes in the law can be difficult but it's essential that you're aware of what will affect your business. Diligence and punctuality pay dividends here; keeping an eye on changes and staying on top of your accounts and records throughout the financial year ensures you are not blindsided come tax time.
Small businesses are very frequently the victims of scam artists. Common tax-time scams to watch out for include:
Tax refund scams. The scammer will claim you've overpaid your taxes and are eligible for a refund but you must first pay a fee for administration.
Tax owed scams. The scammer will claim that you've underpaid your tax and will need to repay the amount you owe immediately, requesting your credit or debit card details.
Review finances and plan for the next year
All the paperwork you're required to do at tax time makes it the perfect time to review your finances and make plans for the future:
- Recover debts: You'll be able to claim a tax deduction if you can't recover debts.
- Review investments: Has the value of your goods changed?
- Review insurance cover: Are you still properly protected against all the risks facing your business in today's world? Do you need a larger plan as your business grows?
- Create a cash flow forecast: This helps prepare you for any shortfalls over the next 12 months and will stand your business in good stead for the future.
Goals for the new financial year
Any business owner will tell you that planning is an essential and ongoing part of running a small business. While there's no easy blueprint to success, evaluate and take stock of what works and what doesn't, by creating goals for the new year, for example, staying on top of the rapid changes that technology has brought about.
As your business grows and expands, for example from a partnership to a company, or downsizes, it's important that you look at changing your business structure. Compliance and taxation regulations differ depending on your business structure.
Does your insurance still cover you?
Insurance cover is something all businesses must review at this time of year. It's worth asking what kind of cover you have in place. Do your goals for the future still provide you with adequate cover? Are there risks your business is not protected against? Could you simply be saving money by switching providers?
If your small business uses digital technology of any kind, then you are exposed to what's known as "cyber liability" or "cyber risk".
This is why Australian businesses are turning to cyber insurance. Providing extensive cover for all common problems like data breaches or online hacking, it gives the business owner peace of mind in our digital world. It's worth asking then, if you don't already have cyber insurance, whether your traditional business insurance provides you with adequate cyber security?
These are the questions worth asking and the steps worth taking, as the end of financial year approaches. Though it can be a stressful time for many small business owners, it's the ideal time to review your financial situation and make plans to ensure the success of your business future.