To save you some EOFY grey hairs, below are some of my end of financial year tips. That way, you can get back to doing that thing you do so well and use this as a checklist to minimise your tax bill at the end of the year.
- Embrace the cloud: Once upon a time you had to keep every paper receipt tucked away in an envelope in an overstuffed filing cabinet. Now you don’t need to keep paper receipts and all of your deductions can be stored safely in the cloud. If you’re a business you might want to consider a cloud based solution such as Xero, Quickbooks or MYOB.
- Incur or Pay for deductions prior to 30 June: This one seems obvious but every year I meet so many people who simply forgot about buying a new computer, upgrading their mobile phone or making a donation until after 1 July when it’s too late. The best idea is to make a list of what you need and a plan to buy it well before the end of June when you may be tempted to forget.
- If you’re a small business. Make sure you’re taking advantage of small business concessions. If your turnover is less than $10million you can choose to pay tax on a cash basis, write-off in full any asset that costs up to $20,000, pool assets and use simple inventory valuation methods. Don’t let your accountant be lazy and miss out on these sweeteners which can save you thousands in tax.
- Delay invoicing before 30 June: If you’re a small business (less than $10 million turnover) and you know that a customer pays you promptly and you will receive the money before 30 June then delay invoicing until 1 July. Similarly, if you’re a large business, consider delaying your invoicing until after 1 July to defer tax as well.
- Incur Expenses: Many small business owners think they need to pay for an expense to receive a tax deduction but all you need to do is incur it (or receive the bill dated prior to 30 June). This goes for both large and small business. So order any equipment, stationery, materials you need and make sure you receive the bill dated on or before 30 June
- Prepay expenses:If you’re a small business you might consider prepaying expenses such as rent or insurance for up to twelve months.
- Stock on Hand: If you have slow-moving stock then consider writing it off prior to 30th For the rest of your stock, you have the choice of valuing it at actual cost, replacement cost or market value so make sure you choose whichever will give you the lowest price
- Pay super: If you have staff, pay their superannuation before 30thJune to receive a tax deduction this year and make sure you pay super for yourself.Too many business owners risk not having enough super upon retirement. My rule of thumb for how much super you should be paying for yourself? At a minimum, the amount that would be paid if you were to go and get a job.
- Revisit your Structure: Is your business in the most tax effective structure? If you are a sole trader then you have no choice but to pay tax on all the profits of the business whereas this is not the case for other structures such as partnerships, companies or trusts. There’s also asset protection implications that are worth considering for changing structure and while insurance can protect you, trading via a company or trust can provide another layer of protection.
- Logbooks: Make sure your log books are up to date.For motor vehicles this means your log book needs to be less than five years old. If you’re in a Company or Trust structure and you own cars in that entity, consider keeping a log book on those vehicles now thanks to changes to FBT which means the number of kilometres travelled is now irrelevant to the percentage your FBT is calculated on. A 20 per cent flat rate applies when calculating a car fringe benefit under the statutory-formula method, regardless of how many kilometres the vehicle travels annually.
- Look into your crystal ball. If you know that next year you’re going to drop income because you’re going to take gardening leave, maternity leave or you’re going to have some major expenses, you might want to look at the timing of your tax deductible expenses. That’s because it may be worthwhile in this year to prepay expenses while your income is higher. This may include travel, insurance, interest on loans up to twelve months or insurance.
- Selling your business. If you’ve sold your business this year it’s incredibly important to tax plan now. That’s because if you’re a small business you may be entitled to small business capital gains concessions but you need to trigger some of them before 30 June to take advantage. For example, you can pop profits into superannuation however if you don’t transfer this amount prior to 30 June you’ll miss out.
- Family Trust Resolutions. It’s now mandatory for discretionary trusts to have a written trustee resolution before 30 June showing the intended distribution of income to family members. It’s so important to get these percentages and dollar amounts right or face potentially paying thousands of dollars more at tax time.
- Claim everything you are entitled to: Make sure you know what you can claim. For example if you are on the road for work (or work outside) you can claim sunscreen so if your foundation, lip-balm or moisturiser has an SPF factor then you may be able to claim it. You can also claim home office, internet, travel, training, handbags, food when travelling overnight and so much more.
Saving tax is a little like trying to find the perfect pair of jeans – it requires research and a little bit of legwork but if you’re willing to put in the effort you will have a great result. If you don’t then you really can’t complain.
My suggestion is to prioritise this list with the things you can easily do before 30 June and then as a modern-day philosopher once said, just do it. Of course, if you need more help make sure you call a great accountant who should be hassling you to do your tax planning now.
Melissa Browne is CEO of accounting firm A&TA and financial planning firm The Money Barre. Her latest book Unf*ck your Finances is instore now.