Great News: You’ve Got Tax to Pay!

If you’re like most businesses you may not associate a tax bill with good news. Many businesses spend a great deal of time, some even spend thousands of dollars, just to reduce their tax bill. However, when you’ve been smart with your business having a tax bill is actually good news.

Think of it this way: being prudent with your money and making wise financial decisions is smart. When this is done well and the business is operating profitably, then a tax bill is indeed great news. After all, the only business that pays no tax at all, is the business that’s running at a loss.

The ATO recognises the value that small businesses provide to the economy, while often struggling in a fierce marketplace. This is why they offer concessions and tax offsets that help reduce the cash burden of taxes on small businesses. With the ability to claim immediate deductions for assets up to $20,000 small businesses are less likely to have their funds tied up in assets while being required to pay taxes on accounting profits. The allowance to claim prepayments, the ability to deduct start-up costs, rollover concessions, and some FBT concessions, further ensure that small businesses are not overburdened by taxes.

If you’ve made enough money to be assessed with a tax bill after applying these concessions, then that’s great news! You’ve made enough profit to be taxed, and you’re contributing to the economic support of society. Your tax dollars are being used to support free health care, infrastructure, education, and people who can’t support themselves.

Instead of thinking of tax as a negative, think of it as a valuable business expense, that you just need to be smart with. We recommend getting professional advice to ensure you are wise with your tax position. Follow these SMART steps, then taxes aren’t a stress.

Stay on the ATO’s good side

If you regularly ensure that you are lodging your returns and paying your debts on time, this will keep you in good standing with the ATO. This means if you do happen to get an unexpectedly high tax bill, you will be in a strong position to negotiate a repayment arrangement to help you through. This helps alleviate concerns about an unexpectedly high tax bill.

Minimise non-deductible expenditure

There are certain costs that are not deductible to a business. For example:

• Fines and Penalties
• Provision of entertainment (this may be deductible and subject to FBT for staff).

Making smart decisions includes avoiding non-deductible fines and penalties. Unless you believe that doing so will significantly increase your profits, don’t splash out on non-deductible, extravagant entertainment for clients. Not only is it a high cost that drains the money from your business, you won’t be reducing the burden of this cost with any tax savings.

Accept the deductions, concessions and offsets that you are entitled to

As a small business you are eligible for various concessions and tax offsets. The ATO provides these to help minimise the amount of taxes that a small business has to pay. Claim them! This will free up your cash to reinvest in your business. Many small businesses miss out because they simply aren’t aware of their entitlements.

Reduce taxes with smart choices

Spend wisely, don’t spend simply to save a few more tax dollars.

Consider this simple example: If you have enough cash profits to make large donations anhrefd want to support a particular charity, then by all means, do this and claim your tax deduction. But remember that a tax deduction is simply a way of reducing your taxable income, offsetting the cost of your deductions. You don’t get the money back. If you spend $1000 in donations, you save approximately $300 in tax (depending on your business structure). That means that you are still out of pocket by $700. If you don’t make the thousand dollar donation and have to pay the $300 in tax, then you are only out by $300.

Tuck tax money aside

While it can be tempting to withdraw all your profits, be prudent by keeping money aside to cover your taxes. When you’re in the habit of doing this, getting a tax bill isn’t a burden. We recommend having a separate bank account to put aside tax money. Some people have an account for all their obligations, such as superannuation. By keeping this money separate from day to day funds you are prepared to pay your obligations when and as they fall due.

TAX mean you’re profitable!

As long as you’re following smart tax steps in your business then a tax bill is great news! You are in business to make money. If you’re not, then you need to reassess your business.

Next time you get a big tax bill, smile, and remember that this means your business is heading in the right direction.