8 Tips to Prepare Your Business for Tax Time

Nothing is certain but death and taxes; and yet it’s amazing how many small businesses are unprepared when tax time rolls around. Besides the obvious benefits of ensuring your business is compliant with all ATO regulations, the end of the financial year brings with it a range of deduction opportunities, as well as potential threats to cash flow.

Getting organised ahead of tax time means more than just peace of mind. It also puts you in the best position to work with your accountant to put together a tax strategy that’s best suited to your business. 

So with that in mind, we have a few tips designed to take the pain out of tax time and ensure you’re fully prepared and ready to put your business into the best position to succeed.

1. Take advantage of small business concessions

The ATO offers a range of small business concessions. These concessions can be accessed based on your aggregated turnover and are subject to various eligibility requirements. Small businesses tax concessions include instant asset write-off or immediate deductions for prepaid expenses, simplified or accelerated depreciation, PAYG instalment concessions, simplified stock trading rules, GST instalment payments and others.

Talk to your accountant to find out what concessions may be relevant to your business and be prepared with the necessary paperwork.

2. Get organised with deductions

You can claim a business tax deduction for most expenses from carrying on your business, as long as they are directly related to earning your assessable income. There are plenty of available deductions for a wide range of business expenses, as well as various concessions, offsets and rebates.

When it comes to claiming deductions, there are a number or guidelines that must be followed:

• Only claim deductions for business expenses, not private use
• For mixed business and private use expenses, only claim the portion used for business
• You must have records to prove the expense and show how you worked out the business portion of an expense
• You must use the correct method for calculating and reconciling the amounts you claim
• You must report all income and deductions to the ATO at the right time
• You must pay any amounts owed on time

It’s also important to note that to claim your business deductions will depend on your business type (i.e. sole trader, partnership, trust, company).

3. Get super deductions

If your business has employees, you are required to make regular payments into their super funds. While superannuation doesn’t have to be paid until July 28, ensuring employee and personal super contributions are paid up by tax time. Making your contributions on time means you can claim them as a tax deduction, and avoid being charged any penalties by the ATO.

4. Claim deductions for future expenses

You may be entitled to claim an immediate deduction for expenses you pay in advance. This refers to expenses you incur now for goods or services you will receive (in whole or in part) in a later income year. This can include salaries and wages, bonuses, and R&D expenditure. 

5. Motor vehicle expenses

Business owners can claim tax deductions for expenses related to owning and operating motor vehicles used in running your business.

Legitimate motor vehicle expenses include:

• Fuel and oil
• Repairs and servicing
• Interest on a motor vehicle loan
• Lease payments
• Insurance cover premiums
• Registration
• Depreciation (decline in value).

There are various methods that can be used to calculate motor vehicle expenses. Which method you use depends on your business structure and the type of vehicle and its use. Calculation methods include cents per kilometre, logbook tracking, or actual costs based on receipts.

It’s important to understand which method is appropriate for your business and ensure you have the relevant paperwork in order.

6. Home-based expenses

If you operate some or all of your business from your home, you may be able to claim tax deductions for home-based business expenses. These include:

• Occupancy expenses such as mortgage interest or rent, council rates, land taxes, house insurance premiums
• Running expenses such as electricity, phone, furniture and furnishing repairs, cleaning
• Motor vehicle travel expenses (between your home and other locations, if the travel is for business purposes)

There have been some recent changes to how home based expenses are calculated as a result of the increase in working from home in the wake of COVID, including the temporary shortcut method.

Depending on how much of your businesses operate from home, these deductions could be quite beneficial to your tax situation and are worth exploring in detail before the end of the financial year. 

7. Write off bad debts

To deduct a bad debt, the ATO requires you to write it off while it still exists, prior to 30 June. Review your accounts receivable with your accountant or bookkeeper to determine whether a deduction qualifies before the deadline.

8. Keep track of losses so you can claim a deduction for it later

If your business has made a loss, you can generally carry forward the loss and claim a deduction in a subsequent year. Your business structure will affect whether you can offset and claim the loss in the current year, or if you will need to carry forward the loss and claim a deduction in a later year. You may be able to offset current year losses if you’re a sole trader, for example, or an individual partner in a partnership and meet certain conditions.

The best way to get ahead of your tax obligations is to work with an experienced tax accountant and ensure they have everything they need to optimise your tax situation ahead of the deadline.