The Young Witness

6 Tips for navigating tax time as a small business owner

6 Tips for navigating tax time as a small business owner

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With the end of this financial year right around the corner, it's high time for small business owners to start pulling out their records, assessing potential claims, and preparing to file their business taxes on or after June 30th.

Of course, tax time can feel a little more complicated for small business owners over larger enterprises, especially if your business has gone through periods of growth that has seen you enter a higher tax bracket or take on a new size classification.

If you are seeking some clarity on just what you'll need in order to be ready for EOFY this year, the six tips that are outlined below may just help to get you started. Read on to start planning your company's tax time strategy.

1. Review all tax deductions for this financial year

The first thing that you'll want to do is make sure you've collected all claims or deductions that you'd like to make for FY22. Potential deductions can include business receipts, employee travel expenses, depreciation of business equipment, and tax deductible donations.

One particular deduction that may be trickier to define is of course, the depreciation of business assets. Depreciation claims are largely dictated by the costs of individual assets as well as that asset's usable life.

If you're aware of the rate of depreciation for higher cost assets and your company has recorded an aggregated turnover totalling less than $2 million AUD over the last two financial years, you can use the ATO's simplified depreciation rules to take a lot of the guesswork out of claiming asset depreciation.

2. Ensure all income and expenses are recorded

It's incredible how much easier filing your business tax returns can be when all of your paperwork and records for FY22 are both well-organised and readily accessible. Maintaining meticulous records of your income and expenses can help small to medium sized businesses streamline tax time, and make absolutely certain that all figures are accounted for in your final tax return.

Ideally, all of the expenses that you'd like to claim should be kept in folders corresponding to the financial year where those expenses had been made. Doing so will naturally simplify the process of claiming back on your next business tax return. It's also a good rule of thumb to photocopy receipts, as the thermal ink in traditional receipts has been known to fade.

As for your income, this should be recorded promptly at the close of each business day, week, and month, before they're finalised and added to your business books. It's a genuine no-brainer that the tidier your accounts, the easier it will be to make sure that all income and expenses are accounted for.

3. Use the ATO tax calculator and other resources

If you want a little extra support with calculating your business tax return, there are an abundance of specialty tax calculators available online that can be used by businesses operating out of all industries. The Australian Taxation Office website has their own in-built tax calculator, but even the official ATO tax calculator has some limitations, as it's designed to be a general tax calculator that can be used by all business owners.

For specialty calculations for businesses with remote international workers or even sole traders, you can opt for alternatives to the ATO tax calculator, such as those offered by H&R Block, Moneysmart, and Paycalculator, to name a few.

4. Evaluate and amend your business structure if required

Having an overly complicated or convoluted business structure can make tax time a certifiable nightmare, especially if there's really no need for your business to be structured in that way in the first place! That's why the months leading up to tax time is also actually the perfect window for you to re-evaluate your business structure and assess all pay rates amongst your employees.

Taking the time to evaluate your structure can be particularly useful for businesses who have experienced rapid growth during this last financial year.

For instance, if your business has grown from having 15 employees at the beginning of the financial year, to having 20 or 21 as the year comes to a close, then your business has technically grown out of its classification as a small business, and should now be considered a medium sized enterprise, and taxed accordingly.

Setting time aside to understand how the evolution of your business will affect your business tax return will absolutely take a lot of the confusion out of EOFY this year.

5. Seek professional advice when it's needed

If your business has experienced rapid growth or major changes to its structure, such as the addition of remote workers or outsourcing work to sole traders on an ongoing basis, and you're uncertain of just how to prepare for tax time with these large-scale changes in mind, then we highly recommend consulting with your business accountant.

Seeking professional advice during this period in the lead up to EOFY can lift a lot of the weight off your shoulders, allowing you as a business owner to focus on other aspects of your business and managerial duties.

If you do have the budget to spare, it may also be worth considering hiring an in-house accountant or accounting team, so that preparing for the close of FY22 is removed from your list of professional responsibilities, allowing you to turn your attention towards business growth strategies rather than day-to-day management aspects.

With the growth opportunities presented by this post-pandemic economy, there has never been a better time for SMEs to invest in more in-house professionals.

6. Organise record-keeping for the coming financial year

Finally, the end of one financial year is also the perfect time to set foundations for recording throughout the coming financial year. Ready a fresh binder or four if you're hoping to record all quarterly income and expenses, and be sure to clear out your records storage so that you can make room for all the documents, receipts, and invoices that will be likely to flood in as we delve further and further into FY23.

You should also consider making electronic copies of all past business records, just on the off chance that your records storage may be damaged in any way, or even to remove the need for the storage of physical documents and other records entirely.

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Navigating tax time as a small business owner will take time to get to grips with, regardless of the size of your company or the industry you occupy. If you're still identifying the best processes for your business, then use tax time as an opportunity to reflect on what works best for you, and what methods you may need to revisit.

Continuously evaluating your organisational processes surrounding taxation will play a major role in further developing not only these processes, but also your business as a whole.