There’s nothing worse than reviewing your taxes and realising you could’ve saved a lot more if you’d gotten organised earlier. So I wanted to talk about how to avoid some of the most common pitfalls we see SME’s fall into when they plan for tax – you can think of these as your New (Financial) Years Resolutions.
There’s a lot more to effective SME tax planning than just keeping good records and filing on time. With EOFY drawing to a close and a new financial year about to begin, now is a great time to think about strengthening your tax strategy in the new year.
The below tips come straight from our business advisors. Following them will help you develop and maintain a tax plan that genuinely helps grow your business in the long term.
This one is simple, but it’s perhaps the most important. A little bit of preparation can go a long way. Make sure you’ve gotten everything in place well before the financial year ends and tax time begins on July 1st. This will give you the chance to make sure you’ve really got the whole picture.
You’ll be able to double-check anything you might’ve missed, plan for any big tax-deductible purchases, and perhaps even identify unseen areas of opportunity. Plus, it’ll take a lot of stress off your mind.
Another important proactive step you can take is developing a rolling cash-flow projection for at least the next 12 months. It should include any recurring or expected financial comings and goings. This includes things like personal and business tax instalments, profit projections & super contributions.
It’s all about staying on top of everything so you can see clearly and make strategic decisions. It’s easy to get overwhelmed if you don’t prepare.
Software is your friend.
One thing we often notice as business advisors is how many SMEs are relying on antiquated practices. These days, the best way to stay on top of your tax and accounting needs is by implementing cloud-based recording software, like Xero or QuickBooks.
Not on Xero yet? You can sign up through our referral link here to get 50% off your first three months.
If you’re someone who dreads doing the legwork of organising & filing your taxes this year, then this software will make your life a lot easier. Cloud-based accounting programs are faster, more secure and more flexible than the old-fashioned Excel spreadsheet – and it’s miles ahead of a big, bulky filing cabinet.
Using Xero helps you help us. Not only can you access it from anywhere, and it provides easy transparency between you & your business advisor when you’re analysing things like income and profit. This brings us to our next tip…
Get regular help – and never speak to the ATO yourself!
Part of dealing with taxes – and your business finances in general – is the mental battle. Even for people who are good with numbers, dealing with money and tax compliance can be anxiety-inducing & psychologically draining. It’s why a lot of people put it off until the last minute. But you’re right to be anxious – any slightly incongruous thing you say to the ATO could expose you to an audit.
You should always refer them to your business advisor or tax agent – they’re paid to handle the ATO for you. There are other benefits too. By meeting quarterly with your advisor, you can set achievable short-term goals and create ongoing accountability for yourself. Once you’ve sat down with an expert and decided you’ll do something, you’re much more likely to get it done by the time the next meeting rolls around.
At the very least, you should work with a registered tax agent. We’re qualified experts who can handle your tax affairs and deal with the ATO for you. When you no longer have to deal personally with the ATO, you’ll find that a lot of your anxiety around accidentally saying or doing the wrong thing will evaporate.
At Rees Group, we provide both of these services. If we’re not already managing your taxes, then consider giving us a call. It’ll take a load off of your mind and give you an advantage at tax time.
Keep personal & business expenses separate – and watch out for fringe benefits.
This is another one you might’ve heard before. But that’s because it’s good advice – and also because it’s much easier to say than to actually stick to.
Make sure that you have separate accounts and separate debit & credit cards, so that you don’t get mixed up and accidentally catch an uber on the company account. Set up separate tax & trading accounts while you’re at it. It’s also worth ditching the overflowing shoebox and using a receipt app to record your purchases – ‘Receipt Bank’ is a great one.
Another thing to watch out for is the fringe benefits tax, an employee benefits tax that is paid by you, the employer. There are a number of expenses that may be classified as fringe benefits. You can find a full list & how it’s calculated on the ATO website.
Essentially, be wary that when you do something as simple as taking your staff out to drinks or a meal on the company account, you’re exposing yourself to the fringe benefits tax – which can be quite high.
Don’t neglect superannuation.
Superannuation is a powerful tool for growing your wealth, and operating from a position of wealth will help drive your business in the long run.
If you pay your own salary, then don’t make the mistake of tending to your super on autopilot. A lot of people simply put in the minimum amount – which has gone up to 10% in 2021-22 – with every payslip and never thinking about it again.
Instead, youu should aim to time your contributions & put in as much as you can afford (within the non-concessional caps, of course)and then let compound interest work its magic. Over a long period of time, you’ll start to see your superannuation savings increasing drastically.
It’s also a great way to save on tax. This is because the money that’s stored in your superannuation fund is being taxed far less heavily than the money stored in your personal or business account.
By following these tips, you’re more likely to get the most out of your tax planning. Instead of reacting to things as they occur, these practices will help get you out in front of the issues before they happen – and your SME will be set up for growth.
If you’d like to have a confidential chat about how to best implement these strategies within your business, then let us know. Our business advisors are experts, with years of experience. They’ll help you get the most out of your tax.
Disclaimer: This advice is general in nature and does not take into account your personal objectives, financial situation or needs. You should consider whether this advice is suitable for you and your personal circumstances before acting on it.