5 things every small business should know before tax time 2021
Tax is confusing at the best of times, let alone after such a strange year. Here's how to keep things running smoothly.
From furloughed employees to unprecedented stimulus packages, the past 12 months have been financially turbulent for many small businesses. So just how complicated should we expect this year's tax returns to be?
While the lodgement process will remain the same, the unusual conditions have the potential to throw a spanner in the works for those who aren't prepared. Thankfully, we've got a few tips that can help any small business stay on top of things.
If you're yet to adopt technology, take this as your sign to do so. Technology can take on a lot of the heavy lifting when it comes to preparing for tax time, including tracking payroll, managing expenses and creating reports. All essential after such a volatile year.
In many cases, you can even link your bank account and business credit card directly to these programs to create detailed reports without the need for time-consuming data entry.
For example, American Express cards can be integrated with MYOB, Quicken and Excel, so you can set up an automatic feed and easily save hours of admin every week. Hooray!
Plus, it doesn't have to be expensive. Most of these programs have packages at different price points to help make them more affordable, no matter how small or large your business is.
Talk to an expert – early
Whatever you do, don't be tempted to leave things to the last minute. Seek advice from an expert well in advance so that they'll have more opportunity to help.
Speaking to Finder, tax guru and chartered accountant Michelle Maynard said that seeking early advice was one of the most beneficial steps that any small business could take.
"Get advice before the end of 30 June," she urged. "This is a financial year like no other, and many small businesses may be caught out. Advisors can't do anything after 30 June to help you minimise tax, so get that advice before the financial year is up."
Include JobKeeper in your income
JobKeeper was an essential lifeline for thousands of businesses, but technically, it is income. This means that it's a taxable payment and businesses need to include it in their tax return.
"For those businesses who claimed for an Eligible Business Participant, this amount is assessed at the business level, not necessarily at the individual who was named level," said Maynard.
On the flip side, 2020 cash flow boosts are not taxable payments, so make sure they're not included. It may be considered income in your accounting software, but it's removed for tax purposes.
Prepare for a potentially bigger tax bill
This one might not impact everyone, but it's worth double checking so you don't get a nasty shock when you lodge your tax return.
If you usually pre-pay your tax through Pay As You Go instalments, be aware that the ATO adjusted much of the PAYG instalments to nil over the 2021 financial year, to help with cash flow during COVID-19.
"Be mindful, this may mean you end up with a larger tax bill as you may not have prepaid any tax for this financial year," warned Maynard.
However, don't panic if you find yourself in this position. The ATO works with businesses to create manageable payment plans and you can use your business credit card too.
The American Express Qantas Business Rewards card comes with no pre-set spending limit and you can even earn points for paying the ATO, which might make that unpleasant tax bill sting a little less.
Look into the "loss carry back" tax scheme
The government has reintroduced the loss carry back tax scheme. Simply put, if your business experienced a net operating loss, you may be able to apply that loss to the previous year's tax return.
This can result in a refund of taxes previously paid, by reducing the tax liability for that previous year. However, it's not available to everyone.
"There are some criteria you need to meet, including having up-to-date lodgements, a franking account surplus and only claiming tax losses back once," said Maynard.
"This is only available for those entities who operate through companies, so trusts, partnerships and sole traders cannot use this," she added.