All business owners are keen to maximise profits, and reducing your taxes is one way to do this. But minimising tax for medium-sized businesses is no easy feat; you should enlist the services of qualified accountants to ensure you get the best results every time.
Here are some accounting tips that could help you retain as much of your organisation's income as possible.
1. Choose the right business structure
The Australian Government classifies medium-sized businesses as having between 20 and 199 employees. The gap in these two figures is quite significant, meaning medium-sized firms come in all shapes and sizes.
Any superannuation contributions you pay into a fund by 30 June can be listed as deductions in that year's tax returns.
Selecting the right business structure is therefore crucial. A sole trader set-up won't be suitable for a medium-sized entity, but you can choose between establishing a trust, a partnership or a company.
Each business structure has tax advantages and disadvantages, so contact an accounting expert in Geelong to discuss which one best suits your organisation.
2. Use the $20,000 instant asset deduction
Deductions are a great way to minimise tax for medium-sized businesses, and the Australian Taxation Office (ATO) currently allows organisations to instantly write off most depreciating assets that cost up to $20,000.
You can deduct the full cost of assets that were bought and used – or installed ready for use – in the year you bought them. The income of your business must be less than $10 million from 1 July 2016 or $2 million for previous income years, so not all medium-sized firms will be eligible.
Furthermore, business owners can only benefit from the instant asset write-off until 30 June 2018. The scheme has been extended before, so SMEs will no doubt have their fingers crossed that this trend continues.
COSBOA are continuing to push the Federal Government to maintain the $20,000 instant asset write-off for… https://t.co/LwOq9wAAsf
COSBOA (@COSBOA) March 8, 2018
3. Pay your superannuation contributions in time
Any superannuation contributions you pay into a fund by 30 June can be listed as deductions in that year's tax returns. This sounds simple, but some business owners get caught out.
The money must be in the fund on 30 June, so you should aim to make payments a couple of days beforehand to ensure they arrive on time. This is especially true for cheques and other potentially slower forms of payment.
In 2018 and 2019, 30 June falls on a Saturday and Sunday respectively, which means you'll want to pay super contributions into the fund by the preceding Friday at the latest.
4. Write off bad debts and obsolete stock
Review unpaid invoices and perform a detailed stock take at the end of the financial year to identify bad debts and obsolete goods that you can write off before 30 June.
Maintain clear and accurate records of these processes, as the ATO may want to ensure deductions are made correctly.
You should also make the available deductions in relation to your trading stock. Any depreciation in the value of such items over the financial year can be listed.
5. Defer income
You may be able to benefit from deferring invoices into the new financial year, meaning you won't have to include them on your current tax returns.
The most opportune time to do this is when the ATO is set to introduce a lower tax rate in the following year, although company tax rates are not expected to change until 2024-25.
That said, new tax laws are regularly introduced, so you should check with experienced accounting specialists to see whether deferring income could minimise your liabilities.
Do you need tax and accounting services?
Minimising your tax as a medium-sized business requires extensive knowledge of the latest tax and accounting regulations.
WMC Accounting provides sophisticated services in these areas, as well a number of business advisory offerings to deliver exceptional value for your organisation. Please request an appointment today to discuss your needs.