As a small business owner, it goes without saying that tax is the most significant burden on your business each year. You may have been in the situation where you were left with a big tax payable after you lodged your tax return. Or maybe the ATO has asked you to pay a big quarterly PAYG instalment that you can’t pay? If this is the case, your small business should consider tax planning.
What is Tax Planning?
Tax planning is a service whereby strategies are developed and implemented by an experienced accountant, in an effort to ensure tax efficiency, and reduce the amount of tax payable at the end of the financial year. There is no worse feeling than knowing you could have minimised your income tax by doing something prior to 30th June and not doing anything about it when you had the chance to. Or worse still, knowing you had a tax bill to begin with.
What’s Involved with Tax Planning?
Every business is different, so there’s no one size fits all when it comes to tax planning; each client needs a solution that is tailored to their business and the industry they operate in. It’s a good idea to start your tax planning service in March/April each year, giving you enough time to implement the strategies to reduce your tax payable.
• To get the process started, your accountant should review your business performance during the period from the previous EOFY, i.e. July through to March. Ensure they have access to real-time, accurate data. Using cloud based accounting software such as Xero will achieve this
• From there, your accountant can estimate, using your budgets or their own calculations, what is reasonably expected for the remaining months until 30th June
• Using this data, an estimated profit for the year can be calculated, along with an estimated tax liability should you sit back and do nothing until EOFY
• Your accountant then uses scenarios to highlight a variety of tax strategies and how they will affect your business both in the current year, and in future years
• This will provide you, as a business owner, the resources to execute the best strategy for you to move forward with, in an effort to reduce the amount of tax payable
All businesses should consider engaging in tax planning services, especially if your business has experienced significant changes from the previous year, such as growth, re-structuring or entering a new market. Not only will it allow you to ensure your business is operating with tax the most efficiently, but it will also set your finances up nicely for the following year. Does your accountant take on this proactive approach? The team of accountants here at Carbon would be more than happy to offer a second opinion if you’d like to know more about how effective tax planning can take your business to the next level.