Tax tips for business owners
Want to avoid paying more than you should come tax time? Or a frantic last minute search for missing financial records?
Business owners have a lot on their plate, and can easily lose track of an approaching tax deadline or financial data needed to submit returns.
Organization is key when preparing for tax time. As is taking advantage of the many tools and resources out there to support small business.
Set yourself up for success by following these four pillars of painless tax and business management.
1. Commit to clean bookkeeping from day one
Year-round, effective bookkeeping is the best way new business owners can minimize tax season stress. With the wide range of accounting software out there, there’s no reason to rely on time consuming manual methods that leave room for error.
All-in-one options like Xero streamline your most important bookkeeping processes, including:
- Tracking expenses;
- Tracking sales and income;
- Creating and sending invoices and
- Managing bank transactions.
With your financial records all in one place and up-to-date, you’re better positioned to maximize your refund, while avoiding penalties associated with incorrect or incomplete tax returns.
2. Capture every business expense
Many small business owners miss claiming their business expenses, largely because they don’t have a reliable system for documenting expenditures while on the go.
Or without a receipt, you miss out on claiming GST or a tax deduction, because you don’t have the required documentary evidence.
Cash in on claimable expenses by using a system to record receipt data, track mileage and generate expense reports. As an added bonus, many of these tools sync with your all-in-one accounting software.
3. Separate business from personal
Right from day one, small business owners should clearly divide their personal and business expenses. Differentiating between the two will make it much easier to claim deductions on your tax return – and support those claims in case of an audit.
Recommended steps to separate your business and personal finances include:
- Create a separate bank account for your business, and designate a credit card solely for business purposes (this will help you track expenditures while building up your credit and borrowing power);
- Never combine business and personal expenses (for example, if you buy printer ink for your home and your business at the same time, ask for two separate receipts);
- Pay yourself a set salary (or make a standard drawing) from your business account each month (this will help you determine how your income, as well as the business, will be taxed).
4. Always consult with your accountant
Not sure exactly what you can claim as a business expense? Wondering which accounting software to use or how the tax law works?
Consult with us to put your mind at ease – ideally before you do something or at least a long time before your tax return is due for lodgement! In addition to managing the nuts and bolts of tax preparation, regular meetings will help you continuously improve bookkeeping practices and better understand the financial workings of your small business.
Those organizational strategies you commit to now will promote positive relations with your local tax authorities – and the long-term financial health of your business.