“Neglecting These 7 Tax Planning Actions Could Cost You…”
“Neglecting These 7 Tax Planning Actions Could Cost You…”
We know that tax planning can feel daunting. So far, you’re having a great year in business and kicking goals but the thought of a potential tax bill at the end of the year can be stressful. This unknown future number weighs in on your mind and you decide not to think about it too much. Perhaps you believe it is inevitable and there is not much you can do about it.
Or you’ve been really busy serving your customers’ needs or perhaps you’ve been putting off speaking to your accountant about the matter assuming there is still plenty of time left. It’s a little bit like saying I’ll start to exercise… tomorrow, right after I have this last piece of cake…which I promise is the last piece of cake for the year before I start to get my act together!
But that’s okay, because we believe it’s the act of picking yourself up and dusting yourself off and trying again that makes all the difference between the tax savers and the tax payers. Fast forward to the month of May this year when the end of the financial year is fast approaching. It’s time to get serious about ways to reduce your upcoming tax. But where do you start?
In this frantic last minute approach the problem is you might not properly understand the impact of a strategy or worse still, you may run out of time to correctly implement the strategy. Now imagine what it feels like if you have already had the tax planning discussion early on in the year and are well on your way to making a significant impact on the tax that is due.
You can’t put a price on that peace of mind!
Here are 7 things to think about implementing that will have a direct impact on your ultimate tax bill:
Besides being a legal requirement to pay superannuation, it is actually not an allowable tax deduction until physically paid in the relevant financial year. So make sure you pay the superannuation due to your employees and don’t forget the superannuation that is due to yourself as the business owner.
Superannuation may also be crucial for personal tax planning. It is important to take a holistic approach across all your entities to make sure you are getting the best bang for your buck.
Now, we would never advocate purchasing something for the sake of a tax deduction. That would probably be the worst financial advice ever! However, if you were planning on making a purchase anyway (perhaps a new piece of equipment or engaging a professional service), we would advise bringing forward this expense.
So for example instead of paying it in July or August, try to pay the expense in June of this side of the financial year which would qualify for a tax deduction in the current financial year. For the purchase of a fixed asset, there are specific thresholds depending on the size of your business. But don’t worry, we can help you with this to make sure you qualify.
3. Accounts Receivable
Go hard on trying to get paid. No, it’s not a tax saving tip but it is sound business advice. Managing your trade debtors balance and the terms of payment will determine your business longevity. However after you have exhausted all avenues of chasing payment, give due consideration to any trade debtors that should be written off as bad debts. Bad debts are a tax deduction!
Check your inventory balance. Make sure to get into the best practice of performing an annual stock take and a great time to do it would be June just before the end of the financial year. What we are looking for is an accurate value of the stock. A stocktake allows you to determine if there is any obsolete stock or damaged stock that needs to be written off.
You’d be surprised how much difference in the tax bill, the value of stock can make!
5. Fixed Asset Register
If you don’t have a fixed asset register on hand, call your accountant now and ask them to email you a copy. Trust me, they will be surprised at your request! It is best practice to regularly pass your eye over the list of equipment that your business owns and see if there is anything that is no longer in use.
You want to avoid carrying items at market value when in fact it should be written off. There could be some real gems (or duds) hidden in this list which could make a big difference in tax.
6. Legal Structure
This is the perfect time to think about the business structure that you are operating from. There are many factors to consider before changing a business structure and tax is only one factor. Knowing the difference between how a trust, partnership or company is taxed is important information in particular when a business may have outgrown the current structure.
7. Get Your House In Order
This last tip is probably the best of all! Any effective tax planning hinges on timely and accurate financial data available in order to draw an accurate picture of the current state of play. We can extrapolate current data through various scenario analysis to ensure that any tax planning strategies implemented will have an actual dollar difference to the final tax due.
It is the old adage of garbage in, garbage out and one that we live by! Now is the perfect time to make sure that you catch up with all your bookkeeping and ensure your business data is clean and accurate for the first 6 months of this financial year. Most people wait until April or May with 9 months of data however if the bookkeeping is not regular or up to date it doesn’t do much good.
Why wait so late in the piece when other business priorities may arise? We prefer to get in early to give us plenty of time to put things into place. Start thinking about it now.
For example, last year at our regular tax planning meeting we took one of our clients’ existing data and extrapolated for any known expenses that were coming up for the rest of the year. The discussion circled around maximising superannuation, determining the correct value of stock and writing off some bad debt that was being carried in the books.
The client was immensely pleased with a real tax saving of $5367 of cash in their pocket instead of the tax man. Not to mention the peace of mind from knowing everything has been sorted. Of course we think about tax all year round. But we like to dedicate a specific time in the year to hone in and consider the tax implications of a clients’ specific circumstances.
We have so many strategies at our disposal and it comes down to understanding the client and their business and what is possible for them personally. Various tax planning strategies are available to you. Leave it too late and you simply won’t have the time to implement tax-effective actions. The result is that you pay more tax than needed.