Effective tax planning can help you minimise your company and personal income tax payments. The end of the financial year is an important time to consider small business tax deductions as part of tax planning. Here’s a brief overview of some of the deductions you can claim before the end of the financial year to reap the benefits.
Prepay expenses to maximise your tax deductions
If it works with your cash flow, make payments early to get tax deductions in the current year. For example, if you have payables due in July, paying them in June is a way to maximise your deductions in the current year. In addition, prepaying for other expenses, such as insurance for the next, in the current year will help you reduce your tax liability.
Also, paying any outstanding superannuation to staff before 30 June will help you maximise tax deductions in the current year.
On a personal level, you can contribute up to $27,500 per year to your own super. This will be taxed at 15% and represents a tax saving when compared to paying the marginal income tax rate on your assessable income. If your personal income is excess of $250,000 there will be additional contributions tax payable in your super fund of an extra 15%.
Write off bad debts
If you use the accrual method for accounting, determine which outstanding debts owed to you won’t be paid. Writing off these bad debts before 30 June will help you maximise your tax deductions in the current year.
Purchase assets and deduct the full cost
Temporary full expensing of $150,000 ends on 30 June 2023 and will be replaced with an instant asset write-off with a $20,000 limit per asset and available only to businesses with an aggregated turnover of less than $10 million. If you’re considering purchasing an asset valued over $20,000, you can maximise your deductions by making the purchase in the current financial year. Remember that the asset needs to be delivered and installed by 30 June 2023 to qualify for temporary full expensing.
Claim depreciation of business assets
Fixed assets that haven’t been written off using temporary full expensing or the instant asset write-off in previous years can be deducted over time – called tax depreciation, or simply depreciation. This can be complex, with different rules applying depending on the type of asset and how it is used. In addition, some small businesses can choose to use simplified depreciation rules to determine tax depreciation amounts.
Claim home-based business expenses
If you run some or all of your business from home, you might be able to claim tax deductions for the business portion of relevant expenses. These may include:
- Occupancy expenses – such as rent and mortgage interest, council rates, land tax, and home insurance premiums.
- Running expenses – such as phone, home internet and utilities, furniture, and repairs and maintenance
- The cost of driving between your home for business purposes.
If you own the home you are working from, you need to consider the capital gains tax implications of making working-from-home tax deductions.
Also, some business owners might be able to use the revised fixed-rate method of 67 cents per hour for each hour worked from home during the year. Using this method, you cannot claim other deductions for running your business from home. From 1 March 2023, using the revised fixed-rate home deduction requires a logbook for each day worked. Here’s more information on tax deductions for working from home.
Take advantage of loss carry back tax offsets
With the loss carry back tax offset eligible eligible corporate entities can claim losses after the 2020-2021, 2021-2022 and 2022-2023 income years in their 2020-2021, 2021-2022 and 2022-2023 company tax returns. For example, if a company operates at a loss in 2022-2023 and made a profit in 2021-2022, it can carry back that loss to the profitable to reduce the tax liability. This applies to companies, corporate limited partnerships, public trading trusts and small businesses meeting eligibility criteria (such as trading during full years from which they are carrying the loss and to years they are applying the loss). Excluding apply as well, including not being able to carry back capital losses.
Carry forward capital losses
If you had capital gains in past years that weren’t offset by capital losses, you can use these losses for the current year as an offset for gains in this year. This applies both on a business and personal level. Companies can deduct previous capital losses from capital gains in the current financial years if the business is either substantially under the same control or ownership or still in the same line of business.
Capital losses of trusts cannot be distributed to trust beneficiaries, but the trust can carry forward its losses and deduct them from capital gains made in future years.
Make trust distributions
To avoid exposure to Section 100A and prepare for the next year (if you are operating as a trust), ensure that income to be distributed by the trust is in line with cash paid to beneficiaries.
Getting assistance to maximise small business tax deductions
Small business owners can reduce their taxes through effective tax planning, including maximising business deductions. Having the right tax strategy has major implications for your business and personal financial positions. Unfortunately, many business owners aren’t aware of what they can do to minimise their tax.
The team at Equil Advisory ensures that you understand the options on the table, whilst providing expert advice, based on years of diverse experience in all facets of tax planning.
Get in touch to discuss strategies to help you minimise your tax and maximise your business growth.