How to Pay Less Tax in Australia for Small Businesses (Legally)

what's up tax fan for many small business owners the end of each financial quarter signals added stress and hefty tax bills but thankfully there are plenty simple and legitimate ways to reduce your small business tax bill while still meeting all your tax obligations so in today's video i'm going to talk about a few ways that could make a quite a major difference in tax time i'll jump straight into the first one i'm sure you're all sick of me repeating myself about this one but there are two words that are really super important business structure if you choose the wrong structure for your business it could cost you loads in taxes down the line companies trusts and sole traders all have different types of tax rates so depending on which structure the business is operating from the tax is different for example if you're operating your business under a sole trader your individual tax rate can be anywhere between 19 cents in a dollar to 45 in a dollar the company's structure on our van is taxed at the flat tax rate or 25 for small businesses so obviously you've been taxed at the individual at 45 percent the most tax effective structure will be to restructure your business as a soldier to a company i mean there's a whole 20 difference in tax rates it's literally a no-brainer so assessing your business structure is a good first step to reducing that tax bill another underrated aspect of your business to assess from a tax perspective is whether you operate on a cash basis or a cruise basis if your business is operating on a cash basis you're recording income that flows into your bank account when it's received and expenses when they're paid out of your bank account and with a cause you're recording income expenses in the same way but the timing is kind of different so essentially you're recording income before you received it and expenses that you've not yet paid for and you're recording those expenses in income for example once you've completed a service or sold a product you'll issue an invoice to your customer and record that transaction even though the invoice is yet to be settled and if you made a purchase on a credit you record that expense even though you have not yet paid for it and that's the course from a tax perspective with the cash basis accounting system you will need to account for tax in the reporting period in which you receive the payment for the service or the sale and the same applies to your expense and with the course accounting method your income becomes accessible for tax even if you haven't even actually received the income so this could really impact your cash flow if you don't plan properly having said that the most common method for lodging income tax returns is actually the recruiter's method this is because an entity is able to deduct expenses that have been incurred but not yet paid and they can also write off bad debts for income that has not actually been received but issued anyway it's pretty important to understand what accounting basis your business operates under in order to figure out at which point in time the income will be accessible for tax purposes and the expenses are accessible for deductions the third way you can pay less tax is to claim your tax deductions we all know you've got to spend money to make money and if you spend it to produce accessible income then your business will usually be entitled to a tax deduction many businesses trip up by inflating the deductions or claiming for something they shouldn't have but a surprising number also miss out on deductions they could have claimed and in reality there are legitimate deductions that almost every business can take advantage of the golden rule is that you need to show you are actually out of pocket and that the expense has been incurred to run your business if the expense is a mixture of business and personal use you can claim the portion that is used for your business but not the private use portion and then you must have proof of all these expenses so record keeping is essential as well make sure to check out this short video for common list of tax deductions you can claim each year there are a few expenses you can't claim both such as your entertainment expenses penalties and fines and expenses relating to income that is not accessible such as money you earn running a hobby timing is also super important if you want to make the most of your tax deductions for example if you know your business will be spending on equipment or any other business assets in a few months time but it will fall in the next financial year you lose out on those tax deductions in the current financial year if you don't spend now so it might be a good idea that you bring forward those expenses and spend it now in this current financial year so you get that tax claim tax tip number five is to make concessional super contributions concessional super contributions are taxed at a rate of 15 which is likely to be lower than your income tax rate you can claim a deduction on your contributions and the general concessional superannuation cap is 27 500 for all individuals regardless of your age so far and it's up to the current date of 2022. that's why it's a good idea to make the contributions up to that limit before 30 june and lastly claim asset depreciations so if you haven't heard of the instant asset write-off you're kind of missing out so make sure to watch my video on this topic but in a nutshell the instant asset write-off scheme allows small business owners to maximize their deductions by claiming the depreciation for certain eligible assets as an immediate deduction instead of spreading it over five years or a few years there is usually a threshold amount for this which the ato changes each year so make sure to keep up to date with that or speak to your accountant the aussie government also introduced another small business depreciation incentive as part of the 2022 budget temporary full expensing which allows small business owners to deduct the full amount of any eligible depreciation asset first used or installed after the 6th of october 2020. in other words there is no threshold until 30 june 203 this means you can claim an immediate deduction for any asset regardless of how much it costs the only exception to that rule is motor vehicles this is capped at around sixty thousand dollars for 2022 financial year so these are the few of my tax tips for you hopefully they can help you cut down your tax bill and keep you out of jail but remember it's always a good idea to seek professional advice from a tax specialist or accountant to make sure you're operating as tax efficiently as possible and also meeting all your tax obligations if you're unsure about whether any of those above tips are applicable to you and your business feel free to leave a comment below but otherwise i'll see you next time [Music]

Channel: Davie Mach

Views: 48,011

Keywords: davie mach, pay less tax in australia, tax deductions, tax tips, how to pay less tax

Id: QRRQVY8soLM

Length: 7min 4sec (424 seconds)

Published: Sun Jun 19 2022