Tried-and-Tested Tax Planning Strategies for Small Businesses

Every dollar counts in business, especially for small enterprises. Therefore, you need to find ways to minimise your tax liability in addition to optimising income or profit.

With a small business tax planning strategy, you can increase profits while also legitimately lowering the amount of taxes you must pay to the government.

Tax planning harnesses advantageous tax law features, such as relevant breaks, tax credits, and permitted deductions, to reduce taxable income. It can also boost productivity, minimise your overall tax liability, maximise cash flow, and ensure economic stability.

Below are some effective tax planning strategies for small businesses you can implement right away.

1. Deduct assets under $20,000 right away.

At the end of the financial year, some small enterprises have depreciable assets with a written-down value of less than $20,000. To lower taxes, you can immediately deduct these assets, and it makes no difference whether these assets are brand new or used.

2. Delay or defer income.

On books and tax returns, many small businesses employ the cash method of accounting.

With the cash approach, a business records income as soon as it is received and expenses as soon as it is paid, or when money is actually exchanged. This can result in some creative tax planning techniques.

Deferring income to the following year, for example, can be a smart move. That is, if you anticipate being in a lower tax bracket the following year, doing so can mean lower taxes.

3. Spend on repairs and maintenance.

Before the end of the income year, small company owners can spend on repairs and maintenance for items related to employment, rental properties, and businesses to qualify for tax deductions.

4. Purchase tools of the trade or fringe benefits tax (FBT) exempt items.

To reduce taxes, small firms sometimes buy FBT exempt goods. There are numerous items that can be packaged to be eligible for tax benefits. These include mobile phones, protective gear or PPE, digital cameras, notebook computers, tablets, computer software or apps, and hand-held or portable work tools.

5. Prepay certain products and services.

Prepayments for products and services may be deductible for small to medium-sized firms. Examples of these include computer supplies, office stationery, consumables, marketing materials, and printing expenses. Businesses may claim a deduction on these for an advance period of up to 12 months from 30 June 2022.

Besides these, there are other tax planning strategies you can implement to help reduce your tax liability.

For more smart tax planning advice, talk to your accountant or financial advisor.

If this article has inspired you to think about your own unique situation and, more importantly, what you and your family are going through right now, please contact your advice professional.

(Feedsy Exclusive)