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Paying tax is one of the few things that is a certainty for a business owner. While no one really likes paying tax, tax liabilities are inescapable as it is legally part of your obligations. The good thing is there are a number of ways to minimise your tax bill legally. So you can hold on to your hard-earned money and allot it to other things to grow your business.
We’ve rounded up five of the things you can do to minimise your tax this end of the financial year.
Prepaying your business expenses can be an effective strategy to reduce your tax. This refers to an expense that is paid in advance for something that is used or done in the future after the end of the current financial year.
Note that prepaid expenses should follow ATO’s prepayment rules. That is, all prepaid expenses need to be less than $1000 or meet the 12-month rule. The 12-month rule follows that deductions from prepaid expenses can be claimed if the payment is incurred for an eligible service period not exceeding 12 months.
You may consider paying the annual fees for any software subscriptions that you use in the day to day operations of your business, where your business will see the benefits of these into the next financial year.
Some other common prepayment expenses may include:
- Office supplies
- Vehicle expenses
- Marketing expenses
- Loan interest payments
Review your current cash flow and assess if you can delay payments from your clients and other sources of income until July. If possible, you can defer income and delay receipt of invoices to push your tax payable to the next financial year.
Write off bad debts
An unpaid debt or balance that is deemed uncollectible is considered a bad debt. You can claim deductions from bad debts as long as it is written off before the yearend. Remember that you will need evidence to support this claim so it’s good practice to prepare a document when you decide to list a balance as bad debt.
Check if you’re eligible for tax concessions
If your business has a turnover of less than $5 million as a sole trader, partnership, or trust, you can benefit from the small business tax offset. This can help minimise your tax liability by up to $1000. There are other tax concessions available for small businesses such as income tax, CGT, PAYG instalments, and super concessions. You may check out the ATO website to learn if you are eligible for these concessions.
Donate to charity
This one doesn’t just minimise your taxes, it can also make you feel good as you are able to contribute to a good cause. But note that to be eligible for deductions, the recipient of your gifts or donations must have the status of deductible gift recipients (DGRs) and this must be voluntary and you did not get any material benefit from your donations. The amount of deductions you can claim depends on the type of gift you are giving.
Knowing all the means you can do to minimise your tax liability (legally, of course) can help you maximise your business income and reduce the risk of forking on too much for a tax bill.
Condon Noller offers tax preparation services to help you assess all potential deductions and devise the right tax planning strategies to maximise your tax savings.
Set up a meeting with us today to discuss how we can help.