Small Business EOFY Checklist: Steps to Prepare Your Small Business for Tax Time
Tax time—those two words can strike a mixture of fear, dread and anticipatory boredom into the heart of any business owner. As the end of the 2013-2014 financial year fast approaches and retailers start flogging off old stock, it’s also the ideal time of year for businesses to take stock, assess their financial situation and plan for the future.
As the calendar flips its way around to June 30, every business owner should take the time to review their finances. Not only is a new financial year a good time to start over with a clean slate, but it’s also an ideal period to review the previous 12 months and develop sound strategies for future years.
You can get your accounts in order, prepare your tax return, complete Business Activity Statements, look for ways to save money on tax and start planning for growth and future success. To find out how you can take the stress out of the end of financial year and use it as a time to be proactive, take a look at the advice offered in this handy guide.
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What are the regulatory requirements for small business owners?
At this time of year, there are certain tasks small business owners are required by law to complete. These tasks include:
- Filing an income tax return. You’ll need to provide a range of financial information for your accountant to review, as well as highlight any large or unique transactions. The information you accountant will need includes a profit and loss statement for the financial year, a bank reconciliation report, balance sheet and trial balance, general ledger report and more.
- Business Activity Statement (BAS). The end of June will require you to complete your quarterly or annual BAS. If you need help with this, an accountant or bookkeeper can provide assistance.
- Australian Securities and Investment Commission annual report. This is a requirement for companies only, as is filling out a solvency declaration.
- PAYG withholding payment summary annual report. You’ll need to reconcile your payroll and provide payment summaries to your employees by the due date in July. Before you provide PAYG summaries to help your employees lodge their tax returns, reconcile the totals to your business accounts first.
- Payroll tax. Consider whether you may be over the threshold for payroll tax. Speak to your accountant to find out more.
- Workers’ compensation insurance. Now is the time to get all of your business’ insurance requirements in order and review the policies you have in place. Take the time to work out your company’s projected wages and salaries for the financial year ahead. If there are any problematic exclusions in your workers’ compensation cover, see if you are protected against these risks in any other way.
- Superannuation payments. These need to be taken care of monthly, and this is no different just because it’s the end of a financial year.
- Fringe benefits tax return. Some businesses will need to lodge this return. However, even if you’re not lodging a fringe benefits tax return, make sure that no relevant transactions have been overlooked and that all necessary employee contributions are made.
- Staff salaries and awards conditions. Review the salaries of all your staff members and ensure that they are in line with the relevant awards and any other statutory requirements.
- Government grants. If your business receives any government grants, take the necessary steps to ensure you are still meeting any required guidelines to receive those grants.
Is my business ready for End Of Financial Year?
In the lead up to June 30, there are a number of steps small business owners can take to prepare themselves for this end of financial year and for the future. The first step is to ensure that all of your financial affairs are in order, which is obviously something that is often easier said than done. Check that all your finances have been reconciled and are accurate, and review your balance sheet to get on top of any possible future problems with cash flow.
- Step 1
Reconcile your receivables, which will involve chasing down any outstanding payments from customers. If you can’t recover some debts and then are able to write them off as bad debts, you will be able to claim a tax deduction.
- Step 2
Consider your inventory to see whether you can write off or write down the value of any stock. Review your investments—can any be sold to offset losses or have any other positive impact at tax time?
- Step 3
One strategy business owners can use is to pre-pay for services and supplies in order to be able to claim a tax deduction. In fact, bringing forward tax deductible expenses and deferring income can work to reduce your taxable income for the financial year.
- Step 4
Concerning superannuation, make sure you are on top of all your superannuation obligations. You will receive a deduction for all employee superannuation obligations which you pay. As super is such a tax-effective method of investing, you may also want to look at investing your personal assets in super.
- Step 5
The end of a financial year is also the ideal time to plan for the future. Develop realistic profit and loss forecasts for the next 12 months, and set business goals for the next five or ten years. Review your insurance cover—are you protected against all the risks facing your business? Do you have an effective risk management plan in place?
- Step 6
If you’re in business with other people, consider developing a business succession plan. A buy/sell agreement, for example, can help ensure a smooth transition of ownership in the future.Back to top
End Of Financial Year tax minimisation mistakes
In an effort to minimise the amount of income tax they will have to pay, some businesses can fall into traps and make common mistakes. The trap business owners most regularly fall into is simply not keeping up with the changes to tax compliance. The ATO is regularly introducing changes to laws and regulations, so it’s essential you and your accountant are aware of any changes that will affect your business.
A failure to adequately prepare is another downfall for many. Keeping on top of your accounts and records right throughout the year is the best plan of attack, ensuring all your accounts are reconciled and everything is where it should be. This can take a lot of stress out of tax time and ensure that all of your reporting is entirely accurate.
Similarly, don’t leave your tax paperwork until the last minute. Get on top of it early to minimise the hassle and guarantee that you’ll get the most out of your tax return.
Other businesses fall into the trap of spending money simply to get a tax deduction. This is not the right approach to take and can lead to financial trouble in the long run. Make sure your spending is only for essential business purposes and if you can actually use it for a deduction, that’s simply an added benefit.
Reviewing your business insurance plan
Insurance cover is a vital consideration for all businesses, and the end of a financial year is the ideal time to review the insurance cover you have in place. Do you have an adequate level of cover or are there risks which you are not protected against? Could you be saving money on insurance by switching providers or by bundling two or more policies together?
It’s also possible to get a tax deduction for some forms of insurance. For example, it’s often more tax-effective to purchase insurance through your superannuation fund, so you might want to look at the possibility of moving cover to your super fund or taking out a new policy inside super.
In addition, if you have income protection insurance, if you pre-pay 12 months’ worth of premiums you can bring forward a tax deduction. As a result, you’ll have to pay less tax overall for the current financial year.
Though it can be a stressful time for some small business owners, the end of the financial year is the perfect time to review your financial situation and make plans for a successful business future. Taking the right steps at this time of year can help ensure the strong financial position of your business for many years to come.