My biggest tax blunder was receiving a bill for $30,000 worth of unexpected payroll tax. My accountant and I had not discussed payroll tax before. I was going through a period of hiring new staff and growing fast and no-one had mentioned payroll tax. To someone as organised as me, and an ardent budgeter, it was a terrible shock. Tax blunder number 1!
I thought I had my tax affairs in order. This very nasty surprise was not budgeted for and instantly changed again my approach to taxes.
Tax is just one of those things. You earn more, you pay more. The country has to run and we pay for it. It’s not easy, it’s not fun, it doesn’t seem fair and unfortunately, it’s not going to go away. My earliest business mentor said to me if you earn it, you shouldn’t worry about paying taxes. It’s part of life. Just get on and deal with it – properly!
I learnt quickly from my mistakes and encourage you to sit down early with your accountant and learn about tax. Respect tax, whether you like it or not. It is here to stay. Whatever you do, don’t ignore it and don’t hide from it. Learn and get on top of it. It makes tax time far less daunting and frightening and keeps you protected from any hidden surprises.
After 16 years in business, I have learnt a lot from personal experience. Small business is tough enough, we don’t need unexpected surprises. Here are some tips to shine some light on the world of business tax.
1. Make your accountant your friend and get the dummies guide to tax
My first tip is to do your research and then do some more. In the end your business is your responsibility. Pleading ignorance doesn’t save us from penalties should errors be made with tax. Get on the internet, speak to the ATO, your accountant or a business mentor and become comfortable with tax and tax terms. My mantra is to find people who have done it before and learn the fast way – from them.
A tax year runs from 1 July to 30 June so your files need to be sorted accordingly and easy to find. What is more, if taxes need to be paid on a date in a lump sum, you need to recognise the impact on cashflow of being able to pay tax.
2. Protect yourself from shocks
Protect yourself from nasty surprises and speak to your accountant regularly. I meet with my accountant once a month and have him on speed dial. Keep your accountant up to date with your business and ask them to keep you up to date with your finances and tax planning and requirements. Your accountant should not be someone you touch base with every June.
When I meet with my accountant monthly for lunch, we run through a planned agenda and plan my tax bill. Find out from your accountant how she/he best likes to receive your information and the best way to keep it stored.
3. File appropriately to save headaches
Being able to find paper – possibly one or two years later – can be a nightmare, so keep your papers filed well. It may be as simple as putting receipts in white envelopes with the month labelled! Inefficient filing can result in big headaches. Small, disciplined actions through the year make a big difference, and make a world of difference come tax time. You will thank yourself for the discipline.
4. Failure to prepare is being prepared to fail
Tax days come throughout the year, so you need to be prepared. The best way to prepare is to create a separate savings account where you can deposit your ‘tax’ money monthly ready to give to the Government. Your taxes are then being accumulated ready to pay and it makes budgeting easier. My first advisor told me to do this and it was one of the best tips I received. Of course the financial crisis put small business under pressure to do this with payment cycles pushing out. Once this money is placed into the account, see it as untouchable and not as money to be used. By the end of the financial year, you will be glad to have your taxes ready saved.
5. Tax terms
Part of your research is getting to know the different types of tax payments required. Become familiar with different reports and statements at the beginning of the year to help you understand your financial obligations and you are better prepared in assisting your accountant. The BAS (business activity statement) is a quarterly statement businesses use to report and pay tax obligations, including pay as you go (PAYG) instalments, PAYG withholding and GST.
Payroll tax is a tax on employing staff, creating jobs – crazy, I know. From 1 July 2010 to 30 June 2011 the threshold for being eligible to pay payroll tax is $658,000, so if your business is growing towards that you need to be prepared.
6. Know the reports you need
Finally, get to know your financial reports – year to date figures, accounts receivable, accounts payable, cashflow planning, Profit and Loss, balance sheet, lending and credit cards. Few people like figures. They are essential to understand.
Being disciplined with your taxes is good advice. Putting off taxes until the last minute or not having it as a priority can lead to mistakes, cash shortages and needless panic. Be strict in keeping your records, receipts and making payments. Pay your suppliers quickly and practice foresight and common sense about looking after people.
One of my frequent quotes is ‘routine sets you free’. Get into the routine of making tax a part of your monthly agenda. This way you can work to prevent surprise bills. Make your accountant your friend. In addition to our many responsibilities and roles, we as business owners need to take tax head on, stay ahead of the game and save ourselves from nasty surprises.
And if concerned, ring the tax office. They are motivated, on the whole, to keep small business going. If you need help, ask.
–Sharon Williams is founder and CEO of Taurus Marketing