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Handy business tax tips to save money

Businesses can benefit from having strategies across their entire business model. A business is usually strategic about the products and services they provide, customer service, marketing campaigns, website design and branding. However, businesses might not have a strategy in place for their business tax returns and it can definitely pay to have a good plan for tax time.

Have you got a strategy in place for your tax return? Tax returns for the 2020-2021 financial year are due on November 1st, 2021. So, we have put together a number of tips to help you maximise your business tax returns.

There are many strategies a small business can use to reduce its annual business tax. Many businesses overpay at tax time because they are not aware of what can be used as deductions and what is considered a business expense. 

To put things simply, any expense made related to your business is classified as a business expense. That means it can be deducted from your total income earned from your business to reduce the amount of tax paid. A total list of tax deductions for small businesses can be viewed through the ATO website

Let’s look at a simple example of how a business can reduce their taxable income by claiming business expenses: 

A busy ice cream store earns a gross business income of $300,000 for the year. 

The business has the following expenses that year:

  • Employee wages $75,000
  • Lease payments for ice cream store space $40,000
  • Repair the ice cream machine $30,000
  • Bills incl. Electricity, gas, water $5,000

The total net income from the business is ca. $150,000. 

This means the total taxable income could be ca. $150,000. If the business had not known about the ability to claim the deductions as business expenses, they could have paid business tax on $300,000 rather than half that amount! 

Now let’s look at if the business had decided to invest in a new state-of-the-art ice cream machine for $100,000. If they didn’t have the cash flow to fund this they could have taken out a short term business loan. By investing in this new ice cream machine they could bring their total taxable income down to $50,000. Not only would they be benefiting from the use of the new equipment, reducing any potential downtime in the day-to-day, they would also benefit at tax time.

Note, these numbers are estimates only to provide you with an example. The percentage and amount a business can claim on any eligible business expense depends on various variables from the ATO and should be investigated accordingly with a tax professional in order to maximise a business’s claims. 

We have included some tips to help you be strategic about your business tax returns. You may not have all of these in place for the current tax return deadline, however, you could consider them for the 2021/2022 financial period. 

An automated payment system

Having a good, automated payment system in place to track any purchases made towards the business will save you time, money, and a headache at tax return time. If you document all of your expenses using an automated, easy-to-use system you will ensure you are able to deduct all relevant expenses. By not organising your expenses in this way you might miss claiming everything you are entitled to.

You could even claim for things you might not normally think about. A landscaper could purchase numerous tough gloves throughout the year and without having a system in place, receipts for purchases that could have been valuable tax deductions could be thrown away. This landscaper could actually be claiming this clothing as a business tax expense. Let’s not forget that every dollar counts! If you don’t have an automated payment system in place, Lumi can help provide you with the funds you need to get one set up. 

Fringe benefit expenses

You can claim any fringe benefits you’ve paid your employees as a business tax deduction. These include reimbursements paid to a third party for the employee’s expense. They can be a private or a business expense, however, the payment must be made by an employee. Employers can normally deduct the cost of providing the benefits to the employees as well as any GST credits for the items. 

Working from home deductions

Because of COVID-19, business owners have had to work from home or create dedicated working spaces in their homes. There are actually many business tax expenses that you can claim, including the following:

  • Air conditioning and heating expenses
  • Internet bills and phone bills
  • Home electricity and gas bills
  • Did you know you can claim the cost of cleaning your home office, including any cleaning products
  • Depreciation of any home office furniture, computers and equipment
  • Costs of repairing any home work-related assets

Motor vehicle logbook

Keep your motor vehicle logbooks accurate for at least a 12-week period throughout the year. If you can successfully track mileage usage for work for that financial year you can claim this at tax time. Keep the receipts or invoices for any car-related expense such as services and maintenance. You can apply all these to reduce business tax returns for company cars and personal vehicles used for work. 

Repairs and maintenance 

For business owners in any industry, there will be some sort of repair or maintenance for their business equipment at some point. For instance, the maintenance and servicing of equipment such as table saw for a carpenter. Any expense made to repair wear and tear on equipment used to run a business is tax deductible.

Purchase of new equipment 

Investing in your business by purchasing new equipment or replacing old equipment is a tax deductible expense. Don’t put up with old equipment that is not working the way it used to or does not have the newest technological enhancements just because you’re trying to save on costs. That equipment purchased will not only make life easier when running your business, it will also come off the tax bill at the end of the financial year. Especially if you have had a high earnings year, purchasing new equipment is a way to invest money back into your business.

We hope these tips have been helpful as you complete your tax returns. The 2021/2022 financial period is well underway and it could be an excellent idea to invest in assets now to help your business thrive. Investing in business assets can also be a potential tax write-off in the next financial year. 

Lumi can help provide you with the finances you might need to be able to grow your business, not only benefiting from the use of the new equipment, but you can also claim more deductions in your future tax returns. You can find out more about the flexible lending solutions available to you today, click here to start your application.

Post Author: Vanessa Muller

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