If you’re a small business owner, chances are that optimal savings at tax time is high on your End of Financial Year wish list. It’s time to lodge your business tax return and our tax advice in this blog will sure be handy.
“What constitutes as a small business owner for tax purposes?”, you ask. A business with an annual turnover of less than $10 million. If this sounds like you, then you may be entitled to many tax benefits and concessions, which will help minimise your tax.
Want to know what these are? Of course, you do!
In our latest blog, we share with you the top 5 Tax Deductions for Small Business.
If you bought an asset for your business and cost less than $20,000, you can write-off the business portion in your tax return.
This concession is for individual assets i.e. you can have more than one asset and still claim the benefit, as long as all the assets individually, do not exceed $20,000 limit.
Here’s an example:
If you buy a car for $20,000 and other assets, say machinery also for $20,000 and are on a 30% tax bracket, you could write off $40,000 in the year of purchase and save up to $12,000 in tax.
This fantastic benefit is available only up to 30th June 2019, so take advantage of this significant concession while it’s available. Why wouldn’t you?
Better yet, if you buy an asset exceeding $20,000, you can still avail the benefit of simplified depreciation as explained in point 2.
The simplified depreciation rules are attractive for small businesses as they allow you to pool assets costing more than $20,000. So, what exactly does this mean?
Basically, it means that you can pool all assets costing more than $20,000 and claim a flat 15% deduction in the first year and a 30% deduction each year after that. This is regardless of when you purchased or acquired the assets. In addition, when the pool balance before applying any other depreciation deduction falls below $20,000, you can write-off the entire amount for tax purposes.
This helps you write-off your capital expenditure faster and can result in significant tax savings – Sounds pretty good, right?
Here’s an example:
Say you were to buy two assets, a trade ute for $28,000 on 28th June and a piece of machinery for $22,000 on 30th June. You can use the small business pool and claim $7,500 (15%) depreciation in the first year, even though you purchased the assets a few days before the close of the financial year.
The following year, you can claim $15,000 (30%) depreciation, meaning you would be claiming a total of $22,500 of the $50,000 within 12 months. This saves you a total of $6,750 on your tax bill, assuming an average tax rate of 30%.
Planning a capital expenditure? The strategy of purchasing assets close to the end of the financial year will be more beneficial than purchasing them at the beginning of the next financial year, providing you have the cashflow to support it.
What you may not know, is that certain start-up expenses on obtaining advice that would otherwise be deductible over five years are now immediately deductible (as of July 1, 2015). Yep! If you’ve received and paid for advice on business structure, legal arrangements, business viability, due diligence for buying an existing business, the development of a business plan and so on, this can all be tax deductible up front!
So, make sure you save the relevant invoices and let your Accountant know of these expenses, sooner, rather than later.
Have any prepaid expenses such as an insurance premium? Luckily for you, you can claim an immediate deduction for prepaid expenses if the payment covers a period of 12 months or less, and ends in the next income year.
For example, if you have paid your insurance premium in June for the next twelve months, you can claim it as an immediate deduction in the year of payment.
If you expect a higher tax liability this year compared to the following year, bringing forward your expenses in this way, can be highly beneficial.
If you’re a small business owner with stock, then the simplified trading stock rules are also something you can look at taking advantage of.
If your reasonable estimate of change in your trading stock during the year does not exceed $5,000, you can choose not to do a stock-take. This means that you can estimate your closing stock value to be the same as your opening stock value, saving you a lot of hassle in stock- take and stock records.
If the difference is more than $5,000, you need to use the general trading stock rules and conduct a stocktake and account for changes in the value of your trading stock at the end of the income year.
It’s important to note however, that your estimate must be reasonable.
As a small business owner, it’s important to know what you can and cannot claim, and how to get optimal savings for your business.
If you like the sound of these 5 best tax deductions for small business and want to know more, we’re here to help.
We specialise in small business tax advice and are happy to offer you a free tax health check.