Five Tax Planning Lessons For 2023
With the EOFY now upon us, many businesses may have missed the boat for strategic tax planning claims - but don't fear, as there's still time for next year.
As Benjamin Franklin once famously said, “in this world nothing can be said to be certain, except death and taxes." While it might sound cynical, anyone familiar with the burden of paying taxes knows all too well that it's an unavoidable, yet necessary evil.
However, that doesn’t mean that exercising at least some control over your taxes is completely out of reach, especially if you identify as a small business owner. Although we have now entered a new financial year, now is the time to start thinking about your tax planning strategy for the twelve month period that lies ahead.
New Financial Year Tax Planning Checklist
While the EOFY madness is only recently behind us, many business owners make the mistake of thinking that the financial work is over. In reality, it’s only just beginning.
Provided that your approach and relevant tax deductions are all by the book, a well executed tax planning strategy can make all the difference on how much of your funds remain in your pocket at the end of the financial year.
In a nutshell, good tax planning often translates to smart accounting. When done well, the process allows the individual or the business in question to -
Estimate the amount of income tax payable due for the financial year
Estimate when tax instalments are due
Estimate how much each tax instalment will be
Create strategies to lower the tax payable while growing your net wealth
Evaluate your financial goals and profitability to track your success
Analyse and review your superannuation
Ensure your business and investment structures match your long term goals
The aim of the game is although you must pay a minimum level of tax on your income, there are ways to reduce that amount providing that you aren't afraid of thinking outside of the box.
For small business owners, the process is slightly more complex. With buzzwords like fringe benefits tax, cash flow, instant asset write off and voluntary superannuation contributions regularly thrown around at the EOFY, it’s easy to feel overwhelmed when it comes to tackling business taxes and your finances affairs.
Despite this, the good news is that the start of a new financial year is actually the best time to make a game plan for your future tax deductions and how to leverage tax planning. For small business owners ready to rumble, use the month of July to start thinking about the following.
Cash Flow Forecasts - Much like many other economic projections, cash flow forecasting is the process of obtaining an estimate or forecast of a company's future financial position, and is typically based on anticipated payments and receivables. When done well, they can be a highly effective tool to project the income, expenses and profits a small business can expect to encounter across the course of a financial year.
Conduct An Inventory - If your business operates with physical goods as opposed to a service, a new financial year is the perfect time to assess exactly what types of items and how many of them you have on hand. Conducting an annual physical inventory is not only important for tax purposes, but is a great way for you to evaluate what products tend to sell or identify which products don’t do as well.
Invest In Software - For those unfamiliar with the concept, Single Touch Payroll (STP) is the way you report your employee's tax and super information to the ATO. First legislated in 2016, the process has received numerous updates throughout the years, with the latest being rolled out on January 1 2022 known as STP Phase 2. To stay on top of your obligations as a business owner, consider investing in accounting software such as Xero.
Top Up Your Super - With many employers now offering salary sacrifice and a record number of SMSFs registered in Australia, harnessing your super is now front and centre as a key tax planning measure. Exclusive of standard employer contributions, an individual taxpayer is currently able to make deductible concessional contributions of up to $25,000 per financial year. In addition, using super as a tax planning tool should be approached with a long term vision. Check For Tax Incentives - In the world of business, knowledge is power - especially when it comes to legally minimising your business taxes. With the EOFY now behind us, now is the perfect time to check if you qualify for any federal or state tax incentives, such as the research and development incentive, early stage innovation company incentive, full expensing of depreciating assets, and even fuel credits.
If you're a business owner looking for assistance in forming a tax planning strategy for the year ahead, now is the time to partner with a strategic advisor to take control of your financial future - and this is where the team at Muro can help.
Take Control Of Your Financial Future With Muro
Whether you’re starting a business, purchasing an existing one, or even reevaluating where your current enterprise stands - all require some form of financial know-how if you hope to successfully navigate your legal tax requirements as well as hitting your financial and business goals.
However, if understanding the legalities that surround your business or finances isn’t your strong point, then it may be reassuring to know that you’re not alone. In fact, many businesses (big and small) enlist the services of an accountant in order to free up their time while knowing that their financial obligations are already taken care of by the professionals.
Ultimately, the team at Muro believe that every business owner is an entrepreneur. However, accounting does not discriminate - finances break down barriers and are not territorial. If you would like to take a deeper look into your finances, please get in touch with us at Muro today to ensure that you’re on the right path for success.