To make things a little easier, we’ve compiled a list of useful tips to ensure your business is tax compliant for the 2022 financial year. This blog details tax compliance tasks to complete and tax deductions business owners should know about.
Tasks to complete for EOFY
Tax compliance is a vital part of financial management for any business and provides owners with a realistic view of their financial position. Failure to meet your tax obligations can result in steep penalties. These can range from a warning to hefty fines.
Here are some simple ways to ensure your business is tax compliant for EOFY 2022:
1. Ensure Accounts are Centralised
Your accounts and financial statements should be digitised. This way, you’ll have an accurate picture of your company’s financial position. Ensure each expense and invoice is entered into backend software and check appreciation and depreciation of assets are also accounted for. This way, by EOFY, you’ll know precisely where everything is.
2. Create a Comprehensive Tax Strategy
The fundamental goal of all businesses is to create more wealth. A tax strategy gives you a plan to achieve this. It includes elements such as how business structure impacts your income taxes, payroll, deductible expenses, and more. Your tax strategy helps you minimise taxes by maximising deductions, moving to a lower tax rate and increasing your tax credits.
3. Keep Real-time Records
Ongoing COVID-19 challenges mean many businesses are contending with reduced turnover or have to stop trading. In either case, ensure your accounts and financial documents are up to date. This way, you can see where you are financially at a glance. And, you’ll be in a great position to complete your tax return and benefit from all the government assistance which is available.
4. Stay Abreast of Tax Changes
Each year, there are tax changes that every business owner should be aware of. These can include tax law changes or concessions and deductions for small business owners. Staying up to date on tax changes ensures your return is filed out correctly and you claim all relevant deductions. This year, for instance, the Instant Business Asset Write-Off has been extended until 2023.
5. Explore Work-From-Home Deductions
With the ongoing pandemic, many of us are working from home. Before claiming any work-from-home expenses, familiarise yourself with the three methods:
Flat hourly rate – You can claim 80 cents per hour for each hour worked from home.
Hourly rate (plus bills) – Using this method, you can claim 52 cents per hour, and claim a portion of household bills (i.e. power, cleaning and internet). This may result in a greater deduction.
Per percentage rate – Add up your expenses, determine the portion spent for work and claim it.
6. Plan your Payment Priority
With the skyrocketing cost of living expenses, finances have never been tighter. Finding ways to reduce your tax bill, getting a refund, accessing government assistance and deferring loan payments will set you up for a prosperous 2023. Deciding whether to defer statutory payments can be difficult. If you can’t manage your repayments, consider taking advantage of government assistance (i.e. low-interest loans).
7. Review your Marketing and Business Plans
Business and marketing plans are not “set and forget” documents. As your business grows or downsizes, they should be altered to reflect this. We advise reviewing your plans each year. Doing so will:
- Remind you of your priorities and goals
- Determine whether current strategies are working
- Allow you to adapt to environmental changes (i.e. moving your business online)
- Help you utilise new opportunities
- Ensure you maximise your efforts (i.e. working smarter, not harder)
8. Re-Evaluate your Business Structure
As your business expands, you may consider changing your business structure. This may be due to a change in management, restructuring, to meet financial goals, or to grow your business. Common business structure changes include sole trader to partnership, sole trader to company, or partnership to company. Remember, your compliance and taxation requirements will change as a result.
9. Keep Expense Records
As a business owner, it’s mandatory to keep your expense records for at least five years. If you’re ever investigated by the ATO, and cannot explain the assistance you’ve received, it may have to be repaid, plus interest.
Small Business Tax Deductions
Running a business can be incredibly expensive. You’re required to pay for everything from stock, to rent, salaries, utilities and more. A large tax deduction can help ease this burden. To maximise your refund, here are various items you can claim.
1. Instant Business Asset Write-Off
Business owners (with an annual turnover of five billion or less) can claim for eligible assets. These include vehicles, equipment and machinery. However, they must directly relate to the operation of your business. If you satisfy the eligibility tests, you can claim these on your tax return for the 2022-2023 financial year. The proviso is that the assets must be installed and used prior to June 30th, 2023. The instant asset write-off has recently been extended to 2023, so there’s still time to purchase equipment and claim the eligible amount against your income.
2. Depreciation of Business Assets
When purchasing fixed assets, deductions are not always immediately available. Instead, the cost of assets is claimed over a longer period. This corresponds to its declining value. Tax depreciation rules are quite complex. So, small businesses can utilise simpler depreciation rules when determining their depreciation claim.
3. Prepaid Expenses
Running a business is very expensive. To offset this, you may be eligible to claim some ongoing expenses as tax deductions. To be eligible, expenses must have a service period of one year or less. These may include insurance policies, professional subscriptions or power bills. However, if you claim prepaid expenses this year, you can’t claim them the following year.
Reference cited: https://www.ato.gov.au/general/interest-and-penalties/penalties/