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Business Tax Tips – How to prepare Year-end accounts – The first 9 of 18 steps

images/Business Tax Tips.PNGHere’s how to prepare for year-end accounting to have a good finish for EOFY with the first 9 of 18 tips to action before 30 June.

1. REVIEW debtors (owe you) and creditors (you owe)

Review your accounts receivable / trade debtors who owe you– who is taking the longest to pay – is debt-collection failing – consider if it is simplest to write off (reverse) the sale (see #2 next) and move on with more Profitable clients and prospects.

Likewise – who do you owe? Can you pay them by the end of year to tidy up your accounts – or, if you are struggling – can you negotiate longer terms to keep things open with suppliers and keep the relationship going?

2. Accounts Receivable – write off BAD DEBTS by 30 June to tidy-up

If you have clients that have closed, or all manner of collection has failed – sometimes it is best to move on and write off those bad debts. Keep looking for better clients! Review all your bad debtors. Write-off all those you think are unlikely to pay to enable a tax deduction this year. We recommend recording this in the minutes/notes of the business after ensuring that all reasonable steps have been taken to recover the debt. Simply raise a credit/reverse invoice at say 15 June date and settle/apply against the original invoice. Be careful – if on accrual BAS reporting you mustn’t DELETE the original invoice – if you are cash reporting, you CAN delete, but keeping it as a record is better in the long-run, in-case you need to refer back, or use the info for another client.

3. DELAY INVOICING sales if too much Profit (seek tax agent advice)

Most businesses are taxed on income when it is invoiced (accrual). Some small businesses may be taxed only when income is received (cash basis). Income from construction contracts is generally taxed when progress payments are invoiced or received. If you are making a good profit (which is good if you want to sell) and want to reduce business tax, it may help to delay invoicing the June work until July, after 30 June - talk to your tax advisor for your situation.

4. Prepay EXPENSES to reduce too much Profit (if appropriate)

Prepaying certain expenses such as rent, repairs and office supplies before year end can reduce your current year tax liability. If payments are due early next financial year, a pre-payment may entitle you to the tax benefit much earlier.  The rules differ depending on the type of entity so please call your tax agent, if you would like more clarification.

5. STOCKTAKE and/or sell off old stock

Trading stock should be reviewed before 30 June, either by a physical count or from a perpetual stock record system. Small Business Entities can be exempt from conducting a yearly stock take if the value of stock has moved by less than $5,000 during the year. Tax is paid on the value of stock at the end of the financial year so consider selling or disposing of slow moving stock so that it is not included in the count.

6. Pay quarterly/monthly SUPER earlier (can reduce profit)

Super Guarantee contributions must be paid before 30 June to qualify for a tax deduction in the 2020/21 financial year. You might consider bringing forward the June quarter contribution payments. We recommend allowing plenty of time for it to reach the super funds (5-14 days some funds require).

7. Get more from your DIRECTOR’s BONUS – seek tax advice

If you are expecting a pre-30 June bonus, you may be able to sacrifice your pre-tax salary or bonus into super rather than receive it as cash. As with the deductible contributions, this could reduce tax on your salary or bonus by up to 34%, and will allow you to take advantage of the contribution caps that apply in this financial year. Once your money is invested in super, the tax going in is only 15% and also, tax on earnings is capped at 15%, which may compare favourably to investments held in your own name.

8. Pre-pay investment LOAN INTEREST for deduction

If you have (or are considering establishing) a geared investment portfolio, you can pre-pay 12 months’ interest on your investment loan and claim the cost as a tax deduction in the current financial year.  This can assist to manage cashflow more efficiently, and potentially reduce your income tax liability this financial year.

9. Pre-pay income protection PREMIUMS for deductions

If you are employed or self-employed, income protection insurance provides peace of mind about the security of your income in the event you are unable to work due to illness or injury. Premiums for this insurance are generally tax deductible; prepaying your annual premium prior to 30 June will allow you to claim a full year of cover in advance as a tax deduction.

Need help? Not sure? Call for FREE 30min advice / strategy session today!

Email This email address is being protected from spambots. You need JavaScript enabled to view it. or call 0407 361 596 Australia

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