This year has presented several challenges, which is why it is vital to consider strategies that can reduce your business’s taxable income. For this reason, we invite you to use our top tax planning Tips for businesses to help you organise your tax and build a financial solution to suit your business requirements.
TIP: Deferring income.
This is probably the most straightforward of all tax planning strategies. If you predict you’ll have a significantly higher taxable income this financial year, you may wish to look at ways to defer your income to the following year.
TIP: Review debtors and write off bad debts.
Do you have outstanding debtors with payments that are unlikely to be collected? Review these before June 30 to determine whether these debtors should be written off to claim a bad debt tax deduction. Businesses can claim a tax deduction for debts that cannot be recouped and have been written off as bad prior to the end of the financial year.
TIP: Claim immediate deductions for business assets purchased.
Temporary full expensing deductions are available for small businesses that purchase business-related plant and equipment that are installed and ready for use by year-end. While there is generally no limit to the amount of the deduction that can be claimed, deductions for cars are capped at the depreciation limit of $64,741.
TIP: Bring forward pending expenses.
Subject to cash flow, try and bring forward pending expenses before 30 June 2023 to ensure the expenses are deductible in the 2023 financial year.
TIP: Subject to cash flow, prepay expenditure by EOFY.
Small business entities are eligible to claim deductions for prepayments made which have a prepayment period of fewer than 12 months.
For these taxpayers, making prepayments accelerates the timing of the tax deduction that would otherwise be ordinarily claimable in the following financial year.
TIP: Consider revaluing trading stock.
If the value of trading stock items on hand is below the cost price, consider revaluing the stock to its net realisable value to claim a tax deduction by EOFY.
TIP: Determine whether any invoices have been issued for work that is still required in the following financial year.
If invoices have been raised, there is the possibility that the invoices may not be assessable for tax purposes if the amounts invoiced are required to be refunded if the work is not subsequently performed.
TIP: Pay June superannuation guarantee obligations by the end of the month to ensure payment is deductible in the 2023 financial year.
The tax legislation only allows deductions for superannuation contributions when the amounts are paid. If payments are made by the end of the current financial year, the amounts will be deductible from that same period.
TIP: Apply loss carry-back provisions for companies.
Companies that incur a tax loss in the 2023 financial year can use the loss to offset tax paid by the company in 2020, 2021 or 2022 financial years. Applying loss carry back could result in a refund of tax previously paid in those years.
TIP: Maximising home office deductions.
If you are regularly working from home for your business, The ATO has issued a short-cut deduction methodology in the 2021 financial year which allows taxpayers to claim a deduction of 80 cents for each hour that they work from home. If the short-cut method is applied, no additional deductions for phone expenses, internet, depreciation, and utilities can be claimed.
Taxpayers may elect not to use the short-cut method and can claim deductions for home office expenses based on actual costs incurred, which directly relate to their work.
TIP: Make use of the current small business concessions.
In addition to temporary full expensing, and a lower company tax rate for eligible businesses, the federal government has introduced a range of tax concessions for small business to assist with cashflow. Latest concessions include an increase in the small business income tax offset and deductions for professional expenses for start-ups.
How Yield can help
Most businesses we work with utilise cloud-based software to record their transactions. This allows us to review their financial files and plan for tax time. Having all information on hand provides an understanding of where you are and where you are going and helps our team make informed decisions and, ultimately, plan more effectively.
In some cases, business will result a tax saving. In all cases, we will work with you to plan finances for greater flexibility and improved decision making. Tax forecasting and planning is all about understanding your current financial position and instilling confidence in your financial future as we consistently review your business to ensure long-term profitability.
For more information
If you have any questions about tax planning, get in touch with the team at YIELD Business Advisory. Our team can support you with general guidance, business advice, and assist individuals to build a stronger financial future.