Well it’s that time of year again where we focus our attention on tax planning before 30 June.
There are a number of tax minimisation strategies that are often forgotten or overlooked by small business taxpayers.
These strategies also help you focus on certain issues that will help you better understand and account for your business.
I will discuss a few that I have found taxpayers could take better advantage of:
It is essential that bad debts are written out of your MYOB debtors listing before 30 June. Be aware though that the debt must be bad, you must have taken all reasonable steps to recover the debt e.g., reminder letters, follow up calls, legal action, liquidator advice that the debt will be lost or partially recovered etc.
As a small business with income of less than $2Million per annum your company or sole trader ship is entitled to claim the prepayment of 12 months of expenses in advance, or longer, if the amount prepaid in total is less than $1,000. For example, in June 2014 you could prepay your small business’s rent for the 12 months to 30 June 2015. Alternatively or as well, you could pay for a 2 year magazine subscription for $900 and claim the cost in full in the year of payment.
Income protection insurance
I have, on a number of occasions become the accountant for clients who had not claimed their income protection insurance for a number of years. As you now only have the ability to amend the last 2 year’s income tax returns it is essential that these types of claims are not overlooked. Of course, the policy must be for the replacement of your income as a result of illness or disability. Any claim will be assessable and accordingly, it makes sense that the premiums are deductible.
If you sell product, it is important to review your stock on hand prior to 30 June in order to determine whether there are items of stock that are obsolete. By writing these obsolete items out of your MYOB stock inventory module you immediately create a deduction and tidy up your perpetual inventory records.
Plant and equipment past its use by date
Prior to 30 June you should review your depreciation schedule and write off/scrap plant and equipment that is no longer useful to your small business. We all have them, it is simply a matter of taking the time to review, write off and benefit from a deduction for the written down value of the defunct equipment.
Superannuation – how confusing!
How often have you had to ask the question – “so how much can I put into my super fund this year”?
Yes, I agree it’s a bit of a moving feast but in summary, if you were 49 or more at 30 June 2013 you can contribute $35,000 into super in the 2014 tax year, if you are under 49 you are entitled to contribute $25,000 ($30,000 from 1 July 2014).
Perhaps the biggest misconception is that the 9.25% employer contributions are not included in the above contributions caps. In fact, the caps include your superannuation contributions from all sources, so you should be careful to include all employer 9.25% contributions (9.5% from 1 July 14 but subject to Parliamentary Approval) and any salary sacrificed amounts in your relevant contributions limits.
If you are a sole trader and you receive employment income as well, if the employment income is greater than 10% of your assessable income (i.e., your business income, interest, dividends, capital gains etc.) you will more than likely NOT be able to claim personal tax deductible contributions. If this is the case you could consider asking your employer to make salary sacrificed contributions up to your annual contributions cap. Make sure though that you have a prospective agreement in place with your employer.
You should also be aware, if you exceed this limit, the excess contributions will be taxed at your personal marginal rate of tax.
Want more information
We have just circulated our end of year tax planning edition of our newsletter, Words of Wisdom. Please contact us if you would like to receive a copy.