Tax Minimization Strategies for Small Business Accounting

It is likely that as the end of the financial year approaches, you are thinking of ways to save on the investments you have made over time. However, small business owners may find paying taxes stressful. The lack of resources can make managing everything on your own an overwhelming task. In such a time, the last thing you would want is to pay extra income tax without knowing about tax-saving strategies.

Is your company paying extra tax? Looking to save your hard-earned money? Want to know what tax planning strategy enterprise businesses use? 

 

Business owners need to know what taxes they should pay as taxes. To have a stable financial state in today’s overcompetitive market. Insights given in this blog will help you find the right small business tax accountant to feel at ease. You can deduct most of the costs you incur while running your business, such as salaries, marketing, and business finance costs. There are many ways companies and individuals can legally reduce their tax payments and still comply with ATO requirements. 

 

In this blog, we share the top seven tax minimization secrets we discovered while serving the top enterprises. 

 

Let us get started with saving more money,

What is company tax? 

Unlike individual income taxes, company taxes do not have a tax-free threshold. The portion of an income that can be taxed is called 'assessable income', which is determined by deducting allowable expenses from total income.

 

Certain small business corporations with an aggregated turnover of less than 50 million Australian dollars (AUD) may be taxed at a rate of 25% for 2021/22 and later income years, assuming they do not derive substantial passive income. Corporate tax rates for all other tax entities remain at 30%. 

 

Tax Planning for Small Businesses Australia

The best tax planning strategy is developing a plan that will put you in the best financial position possible. An effective tax planning strategy focuses on three key areas: reducing your income, increasing your deductions, and taking advantage of lower tax rates. 

Tax planning is an essential part of every small business that normally occurs between April and June. Tax Accountant in Melbourne can usually be seen planning out the tax deduction for their customers and strategizing how to manage the tax obligations on their clients' behalf. Tax Advisors will also factor in any budgetary changes into tax planning for you and/or your business, enabling you to maximize your wealth.

Tax planning benefits: Effective tax planning can help you-

• Minimizing tax legally
• Have enough capital for business growth
• Cut down risk of litigation with local federal authorities
• Avoid any penalties for tax evasion

Tax avoidance strategies for small business Accounting

Even if you think you have tax planning covered, it's all in the details. For a small business owner, lodging tax returns can be a daunting task, especially with all the other business processes, such as sales, to keep up with.

 

“To qualify for tax deductions, small businesses must have an aggregated turnover (your turnover plus that of any connected or affiliated businesses) of less than $10 million and be operating their business for the entire or part of 2020.”

 

For eligible small businesses, tax minimization strategies may include:

 

Accelerated Depreciation

Many eligible businesses can deduct the costs of depreciating assets using accelerated depreciation, provided they choose to opt-out of backing business investments. Before filing a claim, eligible firms should carefully study the qualifying criteria, since claims will be reviewed as part of our compliance activities.

Depending on your business type and whether you want to use simple depreciation or accelerated depreciation, there may be many different rules for tax deduction strategies. In Australia, as it moves through the economic downturn caused by the pandemic, measures like these can make a difference for small and medium-sized businesses, so check how your business can benefit.

Note- There is no limit of eligible assets that you can apply for accelerated depreciation in an income year. Which is the good news btw.

Major Assets Purchasing 

Small businesses and individuals can undoubtedly benefit from tax deductions when purchasing high-value assets. Companies with revenue less than $500 million ASD can immediately deduct assets like motor vehicles and equipment worth over $150,000. Even though most assets held over one year qualify for the deduction, the total tax can still be substantial. 

Maximize your tax-deductible expenses

Acceptable business expenses that reduce your profit/income are known as business tax deductions (and therefore your tax obligation). The most common tax-deductible strategy for businesses that we found out while working with many tax accountant Australia , it’s the expenses include employee salaries and wages, employee travel expenses, insurance, interest on business loans, rent for business premises, maintenance and repair cost, machines and equipment payments, depreciation on major assets (we discussed earlier as well).  

Set up companies or trusts to distribute business income

Companies with an annual turnover of less than $50 million are subject to a 27.5% company tax rate in Australia. Depending on your business structure, this may be a lower rate than you would pay under your marginal tax rate. 

There are, however, costs involved in setting up and maintaining a company. Establishing a company has many benefits (including tax benefits). On the contrary, setting a trust is an alternative to setting up a company. This allows you to distribute income to beneficiaries with lower marginal tax rates, thus reducing your tax liability.

 

Paying Employee Superannuation 

Any contribution to an income tax department-approved superannuation fund is deductible as a business expense, and any income received by self-managed trusts of an approved superannuation fund is also tax-exempt.

An employer may offer its employees a superannuation benefit as part of their retirement package. Such benefits include provident fund, gratuity, National Pension System, etc. While the employer contributes to a group superannuation policy held by him, superannuation is generally part of Cost to Company (CTC). 

Year-end Stocks

Buying year-end stock and equity investments can fetch higher returns. But also offers tax breaks. There are many deductions you can save on your tax outgo by resorting to sale and reinvesting year on year as against retaining your shares and mutual funds for a longer period and selling them after the intended holding period.

Tax planning at Mizael Partners 

At Mizael Partners, our primary goal is to provide you with an outstanding experience as tax accountants we go the extra mile to exceed your expectations. Our tax accounting services Melbourne includes submission of overdue tax returns, penalty negotiations, tax advice, and liaison with the Australian Tax Office.

The tax advisors at Mizael Partners also provide tailored tax and accounting tips, as well as help you avoid ATO penalties in the early years of your business. By getting you a roadmap of tax deduction process’ success. 

Mizael Partners provides tax services for individuals, small to medium businesses. This usually involves the following services:

 

1. Individual tax returns
2. Sole traders and contractors tax returns
3. Tax returns for investors (property, shares etc)
4. Self-managed superannuation fund tax returns
5. Accounting Services for business visa holders
6. Bookkeeping services
7. Financial statements
8. Company tax returns

To speak with one of our experts give us a call on +61 (0) 466 228 000. Our Melbourne tax accountants can support your business with all its financial needs. We can also help with bookkeeping, internal audits, superannuation accounting and statutory audits for ASIC.

 

Contact us

To speak to one of our accredited accountants please call us on +61 (0) 466 228 000

Source:https://www.mizaelpartners.com.au/blog/tax-minimization-strategies-for-small-business-accounting