For anyone who isn’t an accountant, tax season can be a difficult time to navigate. Add COVID-19 uncertainty to the mix, and this End of Financial Year period could become problematic if you haven’t already started getting on top of the books.
Here are some EOFY tips to help you prepare for future returns and avoid missing payments or obligations you could overlook.
Plan ahead
The longer you leave your tax return, the harder it will be to complete later on. The easiest way to start getting a handle on your finances is to get organised. This could mean simply setting aside time each day or week to monitor how your business is performing, chasing up outstanding invoices or setting aside funds for future payments.
Not every business owner has the time or skills to manage their own finances, but there is a range of options to help you work out your tax obligations.
Outsource
Just because you own a business doesn’t mean you have to manage every aspect yourself. If you’re not a money expert, consider hiring an accountant or financial expert whose job is to aid you with managing your books and staff pay. They’ll be able to advise you on your obligations as a business owner and may even take overall financial management for your business.
However, no financial advisor can provide the same level of business oversight that technology can provide. Staying on top of your finances can be a much more seamless process by leveraging digital tools to automate some of your operations.
Consider adopting an automated payroll system to help track your staff’s pay and entitlements such as leave and holidays. It will also help prevent unhappy staff from asking where their pay is when the time comes.
Know your obligations
Failing to keep your finances in order could have serious consequences, and you could end up in legal trouble for underpaying your staff or not paying enough tax if you don’t know your financial situation.
Requirements such as paying PAYE (pay-as-you-earn) tax and holiday pay can easily be miscalculated if done by hand and can carry serious penalties if you don’t get it right. Employers are also obligated to provide their staff (including apprentices) with a payment summary for the 2020/21 financial year.
Take advantage of entitlements
While automating some of your processes can help save time and money, it’s still vital for business owners to stay across their obligations, as well as what support from the government they could be entitled to.
The advent of the coronavirus pandemic has led the Australian government to introduce a bevvy of support initiatives to help businesses survive during the harsh economic climate. Knowing and taking advantage of these entitlements could make a huge difference to your overall financial position.
JobKeeper is an initiative the government introduced to encourage business owners to retain staff during the pandemic. Businesses that received JobKeeper payments can classify these payments as a taxable expense on their profit & loss statements. Businesses that hired additional staff under 35 years old can also claim the JobMaker hiring credit. If you’re unsure whether you’re eligible for these payments, consult with your financial advisory.
Avoid tax bill shock with incremental payments
Tax time can mean many business owners are stuck with a hefty bill every year, which can be a crushing weight without careful planning throughout the year. Rather than being forced to fork over a large sum every year, business owners can make provisional tax payments throughout the year instead. This can help alleviate stress at an already stressful time each year.
If your business has reached a certain income threshold, you may be required to pay your tax in PAYG (pay-as-you-go) instalments, which typically occur each quarter. The ATO website can guide you as to whether your business meets this threshold.
Even if you don’t meet the threshold, business owners can opt to make PAYG payments voluntarily, which can help when it comes time to budget for next years’ income tax. Businesses making PAYG payments still need to lodge an annual income tax return.
You can check out more tips to help you master tax time at Fergus’ EOFY Tax Return Checklist For Australian Tradies here.
Disclaimer: Fergus does not provide tax, legal or accounting advice. This article has been prepared for informational purposes only and is not intended to be relied on for tax, legal or accounting purposes. You are strongly encouraged to consult your own tax, legal and accounting advisors to determine how the information may relate to you or the specifics of your business.
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