Planning your taxes is a year-round activity, but it becomes particularly important at the end of the year. As you prepare to file your small business tax return, here are some tips for maximizing your deductions and minimizing your tax liability:
Filing Your Business Tax Return
The importance of filing your business tax return
The first step in tax planning is to file your business tax return on time. If you don’t, the government may impose penalties and interest charges. This can add up to thousands of dollars over time, depending on how late you are in filing your return. In addition, if you don’t file a complete and accurate return (or even if you do), there could be additional costs associated with having to amend or correct it later on down the line when it’s too late for them not to catch any mistakes!
Keep records for future reference
Establishing a Separate Business or Personal Checking Account
One of the best ways to protect yourself and your business is to establish separate business and personal checking accounts. This can be done by opening a new account at your bank or credit union, or by simply using one of your existing accounts for business purposes only. If you do not already have multiple bank accounts, it’s important to establish one as soon as possible so that you are not mixing funds between personal expenses and those related to running a company.
You should also make sure that all employees in charge of handling finances are familiar with how this system works before they begin making payments through their own accounts. In addition, all invoices should be paid out through the company’s online portal–this way everything will be recorded properly in case there are any discrepancies later on down the line!
Claiming Deductions for Your Car, Cellphone and Other Expenses
- Car Expenses
- Cellphone Expenses
- Other Tax Deductions
Planning for Capital Expenditures and Depreciation
Capital expenditure and depreciation are two important concepts to understand when planning your business finances.
A capital expenditure is any purchase that will last for more than one year and is not expected to be sold or disposed of within that time frame. This includes land, buildings, equipment (such as computers), furniture, fixtures and fittings. You’ll need to claim these costs as deductions against your income each year through depreciation until they’re fully written off (or “depreciated”). The amount you can claim depends on whether or not the asset was purchased before 20 September 1985 (pre-CGT) or after 20 September 1985 (post-CGT). For example:
- If an asset cost $5 million in 2016-17 but only 2% of its value has been used up by 31 December 2017 then you’re allowed a deduction of $100 per week until all remaining depreciation has been claimed – so five years’ worth at this rate equals $1050 per week ($5250 per year).
- If instead another company bought this same item for $3 million back in 2009 then they’ll only get half as much depreciation because their purchase price was less than half of what yours was – so over five years’ worth would only total around $750 per week ($3750 annually).
Using the Home Office to Deduct Expenses, Maximize Net Income and Reduce Taxes
- Using the home office to deduct expenses, maximize net income and reduce taxes
- Determining whether you can deduct home office expenses
- What qualifies as a home office?
- How to calculate the percentage of your home used for business.
Estimating Future Business Income and Expenses To Help You Make Tax-Savvy Year-End Financial Decisions
Estimating future business income and expenses helps you make tax-savvy year-end financial decisions. You can use a spreadsheet to track your income and expenses, or simply review your tax return to see how much money you made and how much you spent.
Using this information, plan for the following:
- How much additional cash will I need? If your business is profitable, consider whether it’s time to expand or hire more employees–or whether it would be better for everyone involved if there were less demand on existing staff members’ time and energy (for example, by reducing hours). On the other hand, if the past year has been leaner than usual due to economic conditions outside of anyone’s control (such as a recession), then cutting back may be necessary until things improve again. In either case, make sure that any changes won’t affect employee morale too negatively; making people feel valued is an important part of keeping them productive!
The more you know about your business and its tax obligations, the better off you’ll be. It’s important to plan ahead so that when tax time comes around, you’re ready for it. If you need help with your taxes or are looking for ways to save money this year, contact us today!
