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Tax planning is an important part of business strategy to maximise business income. Although most businesses include tax planning in their strategy mix, they tend to devise hasty tax planning strategies that may do more harm than good.
To ensure your tax planning tactics and strategies are effective, you need to be familiar with the right approaches to help you minimise your tax liabilities. Here are some of the tax planning mistakes commonly made by businesses.
1. Not knowing your tax obligations
Your taxable income and tax rate will depend on different factors including your business structure, income, and activities. So you need to ensure you are following the appropriate compliance and taxation regulations specific to you. Some of the common taxes for businesses include Company Tax, Capital Gains Tax (CGT), Goods and Services Tax (GST), Payroll Tax, and Fringe Benefits Tax (FBT).
If you are considering restructuring your business, you must also make necessary adjustments to your tax planning strategies.
2. Quoting a wrong income or not declaring all sources of income
Miscalculation of income poses a big problem in preparing your tax and it can even drive you to stiff penalties with the ATO. Your business is a single entity and it must be treated as such. If you make a cash sale that you have not yet recorded and you use that money to fill up your car with petrol or buy a meal, then you are creating loose ends for yourself that could come back to cause major problems with the ATO later down the road.
This may be a no brainer to many of you, but some businesses do make this mistake.
Also, if your business receives income from overseas, you should also declare that income. Even though not all overseas income is taxable, it’s still good practice to declare it.
3. Not claiming all eligible tax deductions and concessions
You should know you can claim deductions from expenses related to your work or business such as rent, wages, super contributions, insurance, operation expenses, etc.
It is also good practice to review your depreciating assets. The ATO is offering tax depreciation incentives for eligible businesses such as the temporary full expensing and instant asset write-off.
The ATO is also offering concessions for small business entities. These concessions include income tax concessions, CGT concessions, GST and excise concessions, and FBT concessions, among others. It’s essential that you know if you’re eligible for these concessions too.
4. Claiming more deductions than what you’re due
As much as it is important to know all eligible deductions, you should also be careful not to claim more than what you’re due. Often, business owners fall into the mistake of claiming deductions for their personal expenses. An example of this is claiming a deduction for phone or computer with 90% business use and 10% personal use when it is actually the other way around. Remember, you can only claim deductions from expenses related to your business activities. Incorrect claims may incur interest and penalties.
5. Not having records to support your claims
The general rule with the ATO is no proof, no claim. So it’s essential that you maintain all your documents such as income statements, balance sheets, cash flow statements, and receipts. And make sure your records are up-to-date too. Nowadays, it’s easier to store records using cloud-based bookkeeping systems such as Xero.
The Australian taxation law can be a bit complex. So knowing what to do and not to do when it comes to tax planning can play a big role in minimising your tax bill and helping you save your hard-earned money.
Need help in managing your tax planning this end of the financial year?
The Condon Noller team is here to take the guesswork out of doing your taxes. Contact us today and let us discuss your business and what you need to help you devise the right tax planning strategies to meet your personal and business goals.