Why is year end tax planning important?
Tax planning helps you minimise the tax liability of your business.
Paying tax isn’t a bad thing, it means you are profitable, but paying more than you should is!
Most people like to save on tax and want to see their business working to its fullest potential. As tax planning has to be completed by 30 June each year, it’s a fantastic annual opportunity to step back, reflect and plan ahead.
What to consider in your year end tax planning
When we help our clients with their tax planning, we:
- reflect on how the business is performing;
- plan to manage any tax obligations; and
- consider the impact of tax payments on cash flow.
During this process, we ask questions such as:
- Is there a business plan? How is the business performing against it?
- If the business isn’t performing as expected, why not?
- What does the tax position look like at 30 June?
- What can be done prior to 30 June to legitimately minimise tax?
- What tax is likely to be payable and when will it be due?
- Are there any technical tax matters that need to be dealt with before 30 June?
This is also a ‘great time plan for the 2020 financial year. We like to consider your strategic plan for the business, budgets and cash flow requirements.
What you need to know about saving tax
So, what are the some key areas to consider for tax planning?
If you own a business, make sure you maximise contributions to your own superannuation each year (for both you and your souse). This is the best tax planning available. You are literally getting a tax deduction for investing in your own future.
If you are an employer, superannuation is deductible in the year the contributions are received by the superannuation fund. If possible, pay your team’s superannuation prior to 30 June to ensure the business receives the tax deduction this year.
Assets – Instant asset write-off
When purchasing new assets to access the instant asset write-off, there are a number of dates and thresholds to consider now:
- Before 29 Jan 2019 – Value up to $20k and business turnover less than $10m
- 29 Jan – 2 Apr 2019 – Value up to $25k and business turnover less than $10m
- 3 April – 1 July 2020 – Value up to $30k and business turnover less than $50m
Remember: a business should only buy assets that it can afford and that will be used. Don’t buy things just to save tax!
All businesses should review their debtors list prior to 30 June 2019. Any debts that are not able to be recovered should be written off.
Stock on hand
Businesses that own stock should ensure a stocktake is completed at 30 June. Stock can be valued at cost, market value or replacement value – whichever is lower. The different valuations can make a significant difference.
Consider bringing forward expenditure. Depending on cashflow, you may choose to bring costs forward into the 2019 year to reduce tax payable. This may include repairs to equipment, stationery or marketing orders, or other necessary outlays.
As with all planning, it’s best to start early, so all options can be considered and budgeted.
Want to know more about what your business could and should do before 30 June?