As a new or established business owner, do you look forward to tax time or do you dread the thought of reconciling your books?
If you own and/or manage a business, then you would understand that common feeling of anxiety around tax time, especially if you’re not prepared for those end of financial year obligations.
Over an 8 year period, where I have either owned or managed a business, I’ve learned that tax time is bearable and manageable with these following 5 tips, which I hope will be of help to you today:
1. Be Organised
One of the best ways to tackle tax time is being consistently and thoroughly organised throughout the year. That means, balancing your books daily or as often as possible. Plus being on top of your accounts receivables and payables, receipts and invoices.
Another aspect of being organised is having a clearly labelled filing system where all your bills, invoices and receipts are kept. Nowadays, you can use cloud storage to maintain all your paperwork.
A great program called Receipt Bank is perfect for capturing your documents. You can download the app onto your phone and take photos of your receipts for example, then have this synced up to your accounting software. I use Xero cloud-based accounting and using these two programs together make being organised a breeze.
2. Keep Proper Records
As a business owner, you must keep records of everything to do with your business for a period of 5 years. Here is a short list of what records you need to keep:
- Revenue and sales – tax invoices or record of cash sales;
- Expenses – tax invoices, credit card vouchers or cheque book receipts;
- Assets and liabilities – record of your creditors and debtors;
- Bank records – statements, loan or lease agreements;
- Employee and contractor records.
Furthermore, keep records of any calculations you make for your business making sure they align with tax law. Penalties may apply if you as a business owner don’t keep proper records.
3. Submit Your Business Activity Statement Every Month or Quarter
If your business is earning more than $75,000 per year, it is a requirement by law that your business register for GST. This is done through the Australian Taxation’s Office (ATO) online business portal.
Furthermore, it’s crucial to fill out and lodge a business activity statement (BAS) either on a monthly or quarterly basis.
BAS is then used for:
- reporting and paying goods and services tax (GST);
- pay as you go (PAYG) instalments,
- reporting and paying PAYG withholding tax; and
- any other applicable tax obligations.
Keeping up with lodging BAS’ will make your end of year tax time a lot more manageable.
4. Communicate with the ATO
I was in conversation with a young businessman recently who asked me, “do I have to inform the Australian Taxation Office (ATO) that I have changed my business details because I have already told the Australian Securities & Investments Commission (ASIC)?” The simple answer is, “yes”.
ASIC is a totally different government body to the ATO, however they both play an integral role in relation to setting up businesses.
If anything changes with the set-up of your business, such as:
- new contact details;
- new operating or postal address;
- new member or director; or
- retired member or director
then phone the ATO on 13 72 26 and update your business record with them. If you fail to keep the ATO in the loop, you may face serious consequences down the track.
5. Hire a Professional
As a business owner, you may be reconciling your own books or have hired a bookkeeper to do this for you on a consistent basis, which is great practice when done throughout the year.
However, when it comes to lodging your business’ tax income at the end of the financial year, it would be best to hire a professional such as an accountant or a tax agent, who can help you assess your legal obligations. An accountant or tax agent will assist greatly in making sure your books are in order and your tax obligations are met in the correct manner.
Hiring a bookkeeper, an accountant or tax agent can greatly assist in submitting your BAS’ correctly. Make sure to contact and update the ATO if your business details changes.
If your business earns more than $75,000 per year, then register for GST and submit BAS’ either monthly or quarterly. Keep all records of your business activities for a minimum of 5 years and remain organised with your books.
It can be time consuming being on top of your accounts when you want to grow your business and do the ‘fun’ stuff; I have been there and know the feeling. But it is crucial that your tax time game is on point as your life and business will consequently run smoothly [and you can sleep better at night too].
“…but in this world nothing can be said to be certain, except death and taxes.”
― Benjamin Franklin, USA’s Founding Father.
Disclaimer: The content within is general or publicly available information only. Speak with your accountant or financial adviser for advice on your specific circumstances or visit www.ato.gov.au