Last week SmartCompany revealed 15 of the best end-of-year tax tips from a panel of experts. But with June 30 now less than a month away, we know entrepreneurs are hanging for a few more.
Here are 15 more expert tips to help you through the trials of tax time.
Get your stock in order
If you’re operating a retail business then you probably have some useless stock lying around. Use tax time to get rid of useless stock and write it off.
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But Greg Hayes, director of Hayes Knight, says businesses can claim a deduction for stock that has lost value over the past year.
“The Tax Act says you can store stock at lower than commercial value. A company that carries a fair bit of trading stock can use this. If you have a particular product that is not sellable any longer, or perhaps is bought for $100,000 but can only fetch $10,000 due to circumstances beyond your control, this can be valued differently to take a tax write-off.”
Companies have to prove the stock is obsolete, and there is a possibility of paying more tax in the next financial year, but you can gain some savings on this year’s tax bill.
Write-off those bad debts
Writing off bad debts is probably one of the most common tax breaks used by small businesses during the end of the financial year. But Hayes says it’s staggering how many SMEs don’t actually use this benefit, or worse, don’t even know it exists.
“You need to understand the requirements of writing off debts. There are a few different regulations relating to different types of businesses, and this all has to be completed before June 30.”
“The number of times I sit down with a small business owner and identify their accounts, and then they say “I think there’s a bad debt we could have written off” is staggering. It could have been three months ago and they’ve forgotten about it. This is something you need to remember.”
However, businesses need to fulfil a few conditions. The debt must have been previously brought to account as assessable income in the current or former income year, the debt must be in existence at the time of the write-off and it must have been chased by the business in question.
Check for tax breaks when selling a business
Any taxpayers who have may have sold their business need to look at the CGT implications of that, these experts say. More specifically they need to consider whether or not any of the small business tax concessions are available to them as well, reducing their tax liability.
However, some thresholds apply here – $2 million for turnover, and $6 million for assets.
Superannuation tip 1: Caps and contributions
Superannuation is a hot topic, and you want to make the most of it before the financial year ends. First on the list should be contributions – have you made them?
The Government will continue $1 for every $1 you contribute, up to a maximum of $1,000. However, the amount will reduce by 3.333 cents for every dollar your total income is over $31,920 and cuts out at $61,920.
There are also superannuation deductions for self-employed entrepreneurs. You can claim 100% of the amount contributed provided you notify the fund of the contribution, receive a confirmation in writing from the trustee and a tax loss is not created. This is capped at $25,000 per year.
Additionally, contributions on behalf of a spouse are subject to income limits of $13,800 for the spouse. A rebate of $540 is available for people who qualify.
Finally, remember your caps – Peter Bembrick from HLB Mann Judd says entrepreneurs are often caught out by the caps and don’t pay attention, landing themselves with extra tax on the excess.
Currently the concessional super contribution cap is set at $25,000, with the non-concessional cap set at $150,000. A transitional concessional contributions cap applies for over 50-year-olds during the 2009-10, 2010-11 and 2011-12 years, and is set at $50,000 per annum.
Superannuation tip 2: Paying your staff
Hayes says businesses need to make sure they are making their super contributions on time. By doing so you’ll be able to claim some deductions.
“The June quarter SCG payments would normally by payable on July 28. Pay them by June 30 and you’ll get a deduction for the year. Don’t wait another two weeks – they need to be paid anyway, so just do them now. Really, it’s just a timing thing but it’s something a lot of businesses forget.”
Get ready for a new R&D tax break system
Deloitte partner Craig Holland says businesses eligible for R&D tax concessions need to apply now. Changes are being introduced to Parliament next month, he says, so if you apply now you want to get the most out of your efforts.
The new scheme, which will replace the current R&D concessions, will work as a tax credit. Companies will have to prove that core R&D activities are experimental, with the outcome of these activities not known or determined in advance.
The new scheme will allow businesses with turnover under $20 million to claim a 45% refundable tax credit, while companies with revenue over $20 million can access a 40% credit.
The Government says over two million companies will benefit from the changes, as opposed to the eight thousand businesses currently covered by R&D provisions.
Rental property deductions
If you’re investing in property there are a whole host of deductions you can claim, but Bembrick says a number of investors don’t even know they exist.
“One of the things that can be overlooked is building depreciations. The point being that if the building is constructed after 1982, when this depreciation rule came in, there is a 2.5% straight line deduction for things like structural improvements.”
“Certainly these structural improvements would extend to things like driveways and car parks. Also keep in mind that deductions travel from owner to owner as the property is sold, so there may be a whole number of things you aren’t aware of.”
Income protection tip
If business owners purchase income protection insurance prior to June 30, Brass says they are able to claim it in this year’s tax return. He says a $650 premium for income protection will give someone earning $70,000 per year a tax reduction of about $204.75, including the Medicare levy.
Directors’ fees and bonuses
A number of companies will pay bonuses and fees for executives and directors, but Hayes says not many know about the tax advantages that can be claimed if they simply note this will be paid ahead of time.
The benefit is that a deduction can be claimed even if the bonus isn’t paid in the current financial year.
“Declaring the dividends brings forward the tax deduction. Always worth doing because if the company did not make a profit in the 2011 year then the bonuses paid would create a tax loss and they would have to wait for a year where future profits were realised to get the tax benefit.”
Get the paperwork in order
Most businesses wouldn’t necessarily think about getting all the tax paperwork in order, with that job delegated to the bookkeeper or accountant. But PKF director Matthew Field says that for smaller businesses, having the necessary paperwork for tax collected in one accessible place is a necessity if the ATO knocks on your door.
“You need to have your documentation in place for everything. Whether it be loans for private company assets, any type of GST documentation or anything like that. All of this documentation needs to be proper and prepared.”
“This would usually be the case for many businesses, but some often don’t have things organised quickly enough. It’s important to keep this on hand if the ATO wants an audit to be undertaken.”