Tax Season Tips for Small Business Owners
Preparing for tax season is really a year-round endeavour. This year, more than ever before, will be a complicated one, with P&L swings and government rebates and incentives to account for. We highly recommend you get expert advice sooner, rather than later, if you haven’t already. Viridity is a good place to start, where the team are experts in cashflow and the government rebates and incentives.
1. Do you keep your accounts up to date?
Do you update and reconcile your financials on a monthly basis, using a streamlined software or cloud-based system like Xero or QBO? If you haven’t moved your accounts to the cloud during the Covid 19 crisis, it’s not too late, we can onboard you to the right system for your needs to start the next financial afresh.
2. Do you know what credits & deductions you’re eligible for?
Small businesses typically benefit from a wide range of tax credits. From special allowances for research and development, to programs that supplement wages for student employees and apprentices, knowing which credits apply to your business can save you a bundle on taxes.
It’s also important to be savvy about deductions. After all, you want to keep as much of your hard-earned revenue as possible. Often-overlooked items you may be able to deduct include:
- Seminars, classes or conventions you attended to improve your professional skills;
- Unused inventory that you’ve donated to charity (a good reason to consider donating your overstock, rather than paying for storage); and
- Capital assets, such as office furniture, computers, and equipment.
Speak to your accountant about the full range of available deductions you can plan for each tax year.
3. Do you know what you’re eligible to claim?
If you run your business out of your home, you may be able to claim a portion of expenditures like utilities, insurance, property tax, and rent. But you’ll need to keep good records, and all your receipts, to justify why you’ve allocated business costs to your home office. With Covid-19 you should also be clear about any implications for your staff working from home.
The same goes for home office computers and mobile phone expenses. Tax authorities will want to see how you’ve separated the personal and professional use of these assets when you claim them as work expenses.
Want to claim drive-time as a work expense? Ensure you submit a log of your business-related mileage, so you can clearly demonstrate how your personal vehicle was used for professional purposes.
4. Don’t miss the deadline!
This should go without saying, but if you miss the ATO deadline, serious penalties for filing taxes late. Missing the deadline can have a range of negative repercussions, including:
- Added interest to amounts owing, plus a late payment penalty;
- Losing your claim to a refund;
- Loss of credits toward retirement or disability benefits; and
- Delay of loan approvals (lenders require a copy of your filed tax return in order to process your application).
You may be eligible for a lodgement extension if you lodge via a tax agent. If you don’t have an accountant ask us for a recommendation.
5. Seek expert advice well in advance
A survey of small business owners found that a full quarter don’t understand their tax obligations. What’s more, 27% only speak to their accountant at the last minute, just before the filing deadline.
Software has made it easier than ever for small business owners to file for themselves, but when it comes to thoroughness and accuracy, nothing can replace the expert advice of an accountant.
Consult your accountant well in advance to ensure you’re getting the most out of your tax return, and that your documentation is completed on time.
On the bright side, accounting fees are often tax deductible!