Save money today using our 13 point tax checklist!
By Luke Mitchell - Director at Murchisons
It is at this time of year that many individuals and businesses look at what actions they need to take to get a decent tax deduction. This is a great idea as no one wants to pay more tax than they otherwise have to.
The real issue however becomes 'are the items being purchased actually something they have an immediate or 12 month NEED or is the business just spending $1 to save tax of 30c?'.
Sometimes during the frenzy of advertisers offering great EOFY deals... ‘you must get this by 1 July’... emotion can take over and unruly purchasing decisions are made.
To keep up to date with what is allowed (as long as you have the correct business need), here are some pieces of advice that you may wish to follow:
1. Prepay expenses
With tax deductions, every little bit counts. Prepaying your expenses can attract a tax deduction that is commonly overlooked. You can prepay expenses such as subscriptions, business travel expenses, training events, leases, rent, phone, internet, insurance and business asset repairs, not exceeding more than one year.
2. Review your stock and inventory
Take a good look at your stock, identify any damaged or obsolete stock and write it down or write it off. This exercise will impact the value of the trading stock and your profit margins. You will also need to consider how to value your trading stock every financial year, as you may be entitled to a tax deduction when the opening stock exceeds the closing stock.
3. Review your asset acquisition
Do you need new assets? Well now may be a good time to purchase them. As part of the recent 2017 budget, small business and sole traders, with turnover less than $10 million have been given a $20,000 tax deduction for any capital purchase .The items purchased can be brand new or second-hand and needs to relate to your business. This new deduction goes through to June 30, 2018.
Donations of $2 or more to an appropriate charitable organisation is tax deductible if you have a receipt.
5. Rental property expenses
Rental property expenses often go unclaimed. The most forgotten deductions are: bank fees, gardening and lawn mowing, pest control, security patrol fees, secretarial and bookkeeping fees, travel and car expenses for rent collection, inspections of property and maintenance.
6. Home office expenses
If you work from home, you may be able to claim “occupancy cost” and the cost of using your personal computer, software, equipment, furniture, lighting, heating and a percentage of your rent/mortgage as a tax deduction. However, you may not get the full main residence exemption if your home is your principal place of business, for more information visit the ATO website.
7. Income protection insurance
You’re entitled to a tax deduction for insurance premiums paid against the loss of income. Remember though, that this does not include life insurance, trauma insurance or critical care insurance.
8. Work-related car expenses
Business owners who use their personal car for work-related reasons, apart from driving to and from work, can usually claim fuel and maintenance costs as a tax deduction. To be eligible, you must be the owner of the car and your travel must be part of your working day.
For example: driving between offices, special trips to the post office or bank or moving from one job site to another.
9.Internet expenses & Mobile Expenses
- If you ever use your mobile phone or home internet connection, then any business use apportionment may be able to be claimed
- You may be able to claim self-education expenses if there’s a connection between the course and your role in your business. You could be entitled to a tax deduction for expenses including the following:
• textbooks, professional and trade journals
• computer expenses
• student union fees
• student services and amenities fees
• accommodation and meals, only when participating in your course requires you be away from home for one or more nights
• running expenses if you have a room set aside for self-education purposes – such as the cost of heating, cooling and lighting that room while you are studying in it
• allowable travel expenses.
11. Sun protection
- You’re entitled to a tax deduction for sunglasses and sunscreen if, as part of your employment, you are required to work outside for prolonged periods.
12. Cost of managing your tax affairs
- It would be remiss if I didn’t say pay your accountant if you have outstanding fees pre 30 June 2016 for any outstanding fees
13. Financial loss and bad debts
- Consider if you have any bad debts and either negotiate with creditors for payment or write off non recoverable amounts.
Tax should never be the sole driver of any business decision. It should be viewed in the context of other factors such as:
• Is this a need or just a want? If a want how can this be made truly beneficial to the business and does it align to the business strategy.
• What will be the impact on cashflow for the business in the longer term?
• Is this limiting the ability to pay amounts to other stakeholders (creditors and shareholders)
• Was this a planned purchase in line with the budget and forecast.
The last of these points is probably one that the business may wish to prioritise in trying to assess the purchase. If a budget was completed by the business and compared to year to date results regularly throughout the year the business would have already factored the possible purchases in and be able to clearly and succinctly answer the questions above.