You can trim your company’s assessable income significantly with business deductions. To be eligible, write-offs must be taken by the end of the taxation year. If you plan ahead, you can even deduct costs that relate to future years. Here is a list of 15 strategies that can help maximise your organisation’s tax savings.
|Smart strategies can help you take advantage of business deductions, lower your assessable income and increase your disposable income. To help you avoid paying more tax than necessary, here are 15 strategies to complete before the end of the financial year. If you plan ahead, you can even prepay some future expenses and benefit from the deduction in the current taxation year.1. Use concessions: While all businesses are eligible for a range of concessions, some of those tax breaks are specific to small business with annual turnover of less than $2 million. These ‘small business entity concessions’ can cover income tax, capital gains, and other areas that significantly reduce your business’s tax liability.
2. Make repairs: Pay the cost of repairs to your business premise or rental property before the end of the year. If you know you will need to make repairs next year, you may write off the expense in the current year. Do not confuse repairs with improvements or renovations. Those expenses are generally written-off over 25 or 40 years
. 3. Invest in your business. If you have an expansion in mind, all expenditures for assets, marketing, plant and equipment, new equipment and other investments can be used to reduce your organisation’s assessable income.
4. Stock supplies: Before 30 June, buy all the stationary, paper, printer cartridges and other office supplies you need for the remainder of the year as well as all or part of next year. Take advantage of any opportunity to acquire those items that are typically put off, especially if your company has high income in a particular year that will push it into a higher tax bracket.
5. Pay professional costs: If you subscribe to professional journals and professional associations, pay the fees before the end of the financial year and, if possible, prepay for next year and possibly the year after that.
6. Book travel arrangements: Pay airfares and accommodation expenses, as well as costs related to attending seminars, conferences and trade shows, before the end of the taxation year. Add in the costs you know you will incur next year.
7. Purchase or lease assets: If you plan to buy or lease plant and equipment, office equipment or motor vehicles consider the financing options before year-end. If cash flow allows, purchase assets outright or prepay leases.
8. Deduct loan interest: When financing is necessary, consider leasing, hire purchase agreements or chattel mortgages. Large deductions are available for interest on investment loans and you may be able to repay the money.
9. Write off bad debts: Review your ledger of debtors before 30 June to identify debts that are likely to be uncollectible. Make and record efforts to recover the debts by the end of the year. If this fails, you may write off the debts before 30 June to avoid paying tax on income your business didn’t receive.
10. Take inventory: Prepare a stock-take before the end of the tax year so you can take deductions related to trading stock. Your business may deduct the purchase cost of trading stock. A stock-take at the end of the financial year lets you calculate the value of stock on hand. If the value on the first day of the taxable year exceeds the value on 30 June, you may deduct the excess. The amount of the deduction will be determined by the valuation method you choose. The choices range from cost, market value and replacement price. You can also get a deduction for obsolete stock. In those cases, you determine a fair and reasonable value for the stock that is below its initial value.
11. Shed fixed assets: If your business has fixed assets that can’t be used anymore, claim a deduction for the written-down value and scrap the item. You need to take the write off on or before the last date of the financial year.
12. Superannuation contributions: You may significantly trim taxable income by taking full deductions for all super contributions made on behalf of employees and paid into a complying fund by the end of the financial year.
13. Pay bonuses and directors’ fees: Pay staff bonuses and fees to directors before the end of the year and, if possible, arrange for future bonuses to be paid within the current income year to maximize deductions. In most cases, a shareholder resolution will be required to prepay directors’ fees.
14. Make donations: Give a donation or gift to a registered charity before the end of the financial year. Keep in mind that if you receive a benefit in return, such as a dinner or entertainment, gifts and donations are not deductible. The exception to that rule is a gift or donation of more than $250 given at an eligible fundraising event.
15. Purchase gifts: Deduct the cost of gifts for employees, clients and suppliers that you give for special occasions or to show appreciation for a job well done or a project completed on time and without error.
While you are at it, check your cash-flow projections to determine other deductions you may be able to bring forward to the current year. For example, you may be able to prepay motor vehicle registration, compulsory third party insurance, and premiums for workers compensation, as well as for building, income protection, professional indemnity and keyman insurance policies. For more information on these deductions and other write-offs specific to your business, consult with your adviser.