It’s the start of a new year for you and your business and a good time to review your business finances at just over the mid-year point of the financial year.
Maximise the $20,000 Depreciation Deduction
If you run a small business which has turnover of less than $10 million a year, you may be eligible for an instant asset write off. This means that you can claim a deduction for assets used for business purposes if it costs less than $20,000 and purchased between 1 July 2018 to 30 June 2019.
If the asset costs more than $20,000, the total of the cost must be put into a small business pool. Small business owners can claim 15% of that pool in the first year and then 30% after that. If by the end of financial year, your asset pool is below the $20,000 threshold, then the balance can be written off.
This deduction can be used to claim deductions for items used for your business, eg. furniture, equipment, machines, etc. Note that you can only claim deductions for the part of the cost that is used for your business. For example, if you were to purchase a laptop that you plan to use for your business 60% of the time and for private use 40% of the time, you must only claim the 60% of the cost in your depreciation deduction.
Note that if you are registered for GST, you must exclude the GST amount from the cost of the asset when you claim. Otherwise, if you are not registered for GST, you claim the whole cost, including GST.
Utilise the Small Business Income Tax Offset
If you run a small business as a sole trader with a turnover of less than $5 million in the financial years 2019-20, you may be eligible for an 8% “discount” from the tax of your business income, which can cut up to $1,000 from taxes payable. This rate is fortunately set to keep increasing in future years.
Seek Professional Advice
If you have just started a business, it may be beneficial to seek help from professionals, whether it is financial advice, legal advice, tax advice or a range of accounting services. They can assist you with your business and help you to avoid surprises and navigate any obstacles along the way.
Your accountant’s fees are fully tax deductible as business expenses in the year you incur them. Ask your tax agent about claiming professional advice fees in your next tax return.
Understand the Legal Structure of your Business
Small businesses should review their PAYG income tax instalments and notify the ATO if expected profit will be higher or lower than previous financial years.
Take Advantage of Small Business Concessions
Make sure that you have set-up the most appropriate legal structure for your business. There are 4 commonly used business structures in Australia: sole trader, partnership, company and trust.
It’s important to understand the responsibilities of each structure because the structure you choose may affect:
- the tax you are liable to pay
- asset protection
You are not locked into any structure and you can change the structure as your business changes or grows.
If you’re unsure which structure to choose, contact us at Fortiz Accountants for advice and assistance with set-up.
Stay on Top of Superannuation Payments
Ensure that your business’s superannuation obligations are met on time, as you can only claim deductions when you make payment before the deadlines. Late payments are not deductible!
Maximise Deductions While Ensuring that they are Business-Related
Be sure that you maximise deductions for expenses that you are eligible for. However, be careful not to claim unjustifiable expenses just because you think you can. If selected for an audit, the ATO will require you to provide invoices/receipts and in some instances, provide justification as to why these are business-related expenses. Understand your expenses in detail and how they relate to the production of business income.
Speak to an experienced tax agent if you have specific questions about what you can and can’t claim as a deduction.
Set Up a System Early On
Even if you are just starting out with your business, setting up a system will help to reduce stress later on. Start how you want to finish! Documenting the ins and outs of your business will help prepare you not only for tax time but also help you to understand how your business is performing throughout the year. Cloud accounting software, such as, Xero, MYOB or QBO are very popular these days. Fortiz Accountants can certainly assist you with setting up your accounting software and can provide training on how to use your selected software.
Engage a Trustworthy Accountant
Dealing with ATO, ASIC and other government departments can be stressful for you and can often take time off what you’d rather be focusing on: your business.
Laws constantly for many reasons, so having a good accountant behind you might be the best thing after sliced bread!
At Fortiz Accountants, we sincerely care about your business and will learn its inner workings so that we can offer the best advice on a timely basis, helping to you maximise your business profits while minimising your tax bill. Contact us if you have any questions on any of the tips above or if you are interested in working with us to ensure your business will thrive in 2019 and beyond.