Every business owner hates leaving money on the table, especially when it comes to their tax. Investing time and money into your tax planning now could save money for your business in the long run.
It’s not uncommon for businesses to push their tax affairs to the back of their mind while focusing on growth and profits. But inadequate planning results in overworked and stressed accounts departments as well as the risk of paying greater tax than you needed to.
This is why it’s crucial you prioritise an effective tax planning strategy. There are instant benefits to implementing a well constructed plan in coordination with a trusted and experienced accountant, such as those in our Equil Advisory team.
What is a tax plan?
Tax planning involves forward-estimating, organising, and staying on top of your tax affairs throughout the financial year. It begins with a conversation with your accountant discussing the options around any available tax deductions or government incentives.
Tax planning offers the opportunity to take a regular, top-down view of accounts and cash flow, to ensure that the maximum amount of time and money is saved when adhering to requirements of the Australian Taxation Office (ATO). As with any strategy, tax planning should complement any growth model for your business and factor cash levels, assets and future expenditure planning.
What are the benefits of tax planning?
Reduce taxable rate/income
One of the most significant benefits to tax planning is the opportunity to reduce the applicable tax rate, or taxable income, within your business, helping you to save money that you’ve earned. Tax planning may create the time and space required to take every possible step to minimise costs.
A common result of inadequate planning is an unnecessarily large bill to the ATO at the end of the financial year. There’s no need for so many small to medium enterprises (SME’s) to pay nearly as much tax as they do, however they do not internally have the available resources or expertise to be able to minimise this without assistance.
Whereas, your accountant provides this function and advises on key strategies whether it be related to investments, deduction or expenses to reduce your taxable income.
Better managing your tax bill
There are far too many businesses who experience ‘bill shock’ when it comes to their payable taxes. Without foresight or planning, it is often higher than they expect, and a lack of preparedness and cash flow can leave them in a tough (and expensive) situation.
Adequate tax planning with your accountant may help you avoid being taken by surprise. There are tax payment options for businesses available throughout the financial year, allowing for regular instalments as opposed to a bulk payment. Your accountant can forward-plan and forecast according to your revenue and expenditure.
At Equil Advisory, we’ve assisted clients in arranging correct PAYG instalments quarterly, to eliminate the risk of ‘bill shock’. Improving the accounts workflow, such as invoicing, may assist your team in calculating and paying your tax correctly and quickly so you prevent being caught offguard. Further, an accountant may reveal new tools, software and strategies that can improve the efficiency of this process.
Creating an expenditure, offload and income strategy
Tax planning allows a business to get ahead on their expenditure, so that they are minimising their tax bill to the fullest extent, within legal obligations. Your accountant will be able to guide you according to the needs of your business.
The sale of any assets may be subject to tax, such as capital gains, and this needs to be prepared for. The future impact on a business’ tax bill should also be taken into account when planning for any future capital expenditure, such as land, office space or machinery.
This is how the ideal tax strategy future-proofs a business and allows it to plan any future financial moves without the risk of immense tax implications at year end.
There is simply no way that a business big or small will be able to fully minimise their tax if they fail to plan adequately in advance. Small business owners in particular, shouldn’t be expected to be well versed in tax law, including detailed types of non-deductible expenses, or areas where tax exemptions may exist.
Take advantage of relevant programs
Tax planning may also help businesses to take advantage of relevant regulations, incentive programs and offset opportunities. Without the experience of an accountant many management teams may not be aware of their eligibility for these programs, such as environmental tax incentives, and wage subsidies.
For example, businesses may not understand the extent to which they can take advantage of a superannuation contributions cap limited at $27.5k for Self-Managed Super Funds. Having the right accountant can ensure that you are constantly updated as the rules and numbers are adjusted.
Speak to an expert
The bottom line is that businesses know the benefits of minimising a tax bill, but they may not know how, or they may think that they can do it themselves.
Whether you’re a sole trader looking at next year’s budget, or tax planning for a company, knowing who to speak to for the greatest tax savings is invaluable.
Our team at Equil Advisory we’d be happy to lend our expertise to your business to ensure the best possible tax strategy is in place. With the right planning and careful oversight, you may reduce your exposure, and create savings and confidence, moving into the future.