The tax balancing act
If you are a business owner, this is the time of year you either pay the tax bill from last year or even get last year’s tax return from your accountant and possibly a tax bill.
Most business owners using an accountant, are required to lodge around the end of March or mid-May.
This causes two issues, tax bill shock for the past year and the fright that you may be under or even overpaying tax instalments for the current financial year.
We have seen many business owners really struggle to catch up and get back on track when hit with a large tax liability relating to the previous financial year only to be told that the Tax Office wants instalments off them for the current year. Not many businesses are prepared for that cash flow crunch.
So how can you avoid this and what are the solutions:
- Manage your business as a big business would and have monthly or quarterly accounts professionally prepared. Having them professionally prepared will mean they are accurate and a tax liability can be estimated and raised in the accounts so your tax position is front of mind. This allows your year- end tax returns to be prepared earlier and the overall tax position will be clear.
- Use a modern cloud based accounting system that facilitates the preparation of these monthly or quarterly accounts seamlessly. We recommend using Xero with Receipt Bank to achieve this.
- Have a review of your personal tax affairs to ensure your tax position is optimised. For example numerous times in the last few months we have sat down with new clients and noticed they held investment properties. By having a conversation with these clients about the properties they held, allowed us to make amendments to their prior year tax returns to claw back tax paid, due to unclaimed expenses or tax deductions relating to these properties.
- Have your accountant engage in regular meetings throughout the year, so the discussion of the businesses performance and subsequent effect on tax provisions is clear. This means potential strategies and objectives can then be put into place.
- Ensure that the current tax instalments paid to the Tax Office are relevant to your trading conditions now, or adjusted for the year to date performance and not just from what the Tax Office send you.
- Hint: The Tax Office’s instalments sent to you are normally based on the last tax return you lodged with them unless you have actively varied this. Therefore, if you haven’t lodged your tax returns yet as they are not due to Mid May 2018, your tax instalments would be based on your 2016 financial year results and subsequent tax position, which probably isn’t relevant anymore.
- Have your accountant review your account with the Tax Office and if you have recently been penalised or fined for late lodgement or payment request these amounts be reversed. We have been successful in numerous cases of new clients coming to us with these amounts having been imposed by the Tax Office effectively reversed, with the clients receiving cash back.
- Communicate, both with your accountant and the Tax Office (usually via your accountant) to ensure everyone is clear on your position and the way forward.Have a budget, both for your business and personally, to ensure that you are living within your means and that tax has been factored into the overall picture.
Please feel free to contact me to discuss your tax and accounting affairs or arrange a free one hour business consultation using the following link: https://calendly.com/paulgrafton/free-initial-consultation
