As a small business, it’s imperative to stay on top of your bookkeeping to ensure that your accounts are 100% accurate. When it comes to tax season, the process will be a lot more streamlined if your financial affairs are already compliant and up to date. Enlisting the services of a small business tax professional will help you navigate these requirements. This will also help you stay protected in the event of a tax audit and complex tax issues.
To ease the pressure a little, we have put together four tax tips for small businesses in 2020. This will help you remain in accordance with regulations but will also maximise business deduction from government Covid-19 stimulus measures.
We have a mixture of the tax regulations while utilising government measures to stimulate small businesses.
1. Keep A Record Of All Transactions
Anything that you think might be useful for your tax purposes is worth keeping. The following pointers are a good guideline to work with:
Record income from cash
Record expenses from cash
Keep your business and private expenses separate
Keep records of all your stock
Keep records of all motor vehicle claims and expenditure
Keep all tax invoices
2. Be Honest And Transparent
Being honest with your tax professional and The Australian Taxation Office (ATO) is of paramount importance. The ATO uses an intelligent system to track and manage taxpayers’ data. Keep your income and expense claims clean and accurate to prevent receiving a call from the ATO. Some tips to ensure that you’re aligned with proper protocol include:
Declare all cash transactions
Keep accurate records of income and expenses
Ensure you use the correct account codes
Ensure you have used proper accounting for any private transactions
Your enlisted tax professional will help guide you through this process and will ask the appropriate questions to ensure that everything is covered. If you have made any errors, your tax professional can alert you to this.
3. Instant Asset Write-Off For Eligible Businesses
Eligible businesses can claim a deduction for the business portion cost of an asset in the first year of acquiring and using it, or when it’s installed ready for use.
Instant asset write-off can be used for:
New or second-hand assets
Multiple assets, so long as the cost of each asset is less than the relevant threshold
It cannot be used for certain assets that are excluded. You can find more information about those exclusions here.
The eligibility criteria for instant asset write off has changed over time. Make sure you check the eligibility amount for your business so that you apply the correct threshold amount. It will depend on when the asset was purchased, installed ready for use, or when it was first used.
From the 12th of March 2020 until the 31st of December 2020, the following changes apply to the instant asset write-off:
The threshold amount has increased to $150,000, up from $30,000 for each asset
The eligibility has expanded to cover businesses with an aggregated turnover of less than $500 million (up from $50 million)
If you purchase a car for business use, the instant asset write-off is limited to the business portion of the car limit of $57,581 for the 2019–20 income tax year and $59,136 for the 2020–21 income tax year. The excess cost of the car cannot be claimed under any other depreciation rules.
You can claim a deduction for the balance of your small business pool if it's less than $150,000 before applying depreciation deductions at 30 June 2020.
Where the asset cost is not available for the deduction, it will be allocated to the general small business pool and depreciated at the appropriate rate (subject to whether it’s eligible for accelerated depreciation or not). Where a balancing adjustment occurs during the year, the asset’s termination value must be deducted from the pool.
4. Small Business Income Tax Offset
Small businesses will be eligible for the small business income tax offset of up to $1,000 for the year ended 30 June 2020, provided your business continues to run, and your aggregated turnover for the year is less than $5 million. The offset rate is 8% of the income tax payable on the portion of an individual’s taxable income that is their ‘total net small business income’.
5. Cash Flow Boost
Cash flow boost payments are classified as non-assessable, non-exempt income so no tax will be payable. The cash flow boost is not subject to GST and you are still entitled to a deduction for PAYG withholding paid.
Staying on top of your small business tax is an ongoing process. For assistance, advice, or to enlist the services of an experienced tax professional, contact our Blueprint specialists today.