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Mr Taxman's top ten business tax tips for 2010

May 04, 2010

Business owners always ask me for a tip or two around this time every year. Here are a few great strategies for your business to try to implement prior to 30 June 2010 to legitimately reduce tax.

1. Deferring income & bring forward expenses

It is always a good idea to try & defer your taxable income to next financial year. For those operating on a cash basis then simply delay the "receipt" of the income. If you operate on a non-cash basis then you may want to defer your invoicing til next year.

2. Scrap obsolete stock & plant

Got some old plant or stock that your business simply can't sell? Then physically write it off before 30 June & get a tax deduction for it this year. You can value trading stock at the lower of actual cost, replacement cost, or market selling value. This valuation can be applied to each item of trading stock.

3. Claiming deductions for expenses not paid at year end

Just because you haven't paid for something doesn't mean that you can't claim it. Businesses are entitled to an immediate deduction for certain expenses that have been "incurred" but not been paid by 30 June 2010 including:

  • Salary and wages - claim the number of days that employees have worked up to 30 June 2010, but have not been paid until the new financial year.;
  • Directors fees - claim a tax deduction for directors fees that are "definitely committed" to at 30 June and has passed an appropriate resolution to approve the payment;
  • Staff bonuses - claim a tax deduction for staff bonuses and commissions that are owed and unpaid at 30 June where the business is "definitely committed" to the expense;
  • Repairs and maintenance - claim repairs undertaken and billed by 30 June but not paid until next year.

4. Income splitting

It amazes me how many smart business people are really dumb when it comes to reducing tax. Too often I see them paying 46.5 percent tax on income which could be in put in their lower taxed spouse (0 percent or 16.5 percent) or company (30 percent).

5. Write-off bad debts

Like obsolete stock, for a business to get a tax deduction on its bad debts it must physically write off the debt prior to 30 June. Note that the debt must have been originally shown as income in order for the write off to be allowed. Put your decision in writing such as a board minute. You also need to show that you have made a genuine attempt to recover the debt to prove that it is bad.

6. Take advantage of the Small Business Entity (SBE) concessions

If the turnover of your business is less than $2 million then there are some great tax concessions that you can get including:

  • Immediate write-off for assets costing less than $1,000 (which is set to rise under the proposed Henry Tax Review to $5,000)
  • Immediate deduction for prepaying expenses such as lease payments, interest, rent, business travel, insurances and subscriptions up to 12 months in advance by 30 June

7. Don't spend purely for a tax deduction

There are so people that get caught out at this time of the year in spending money purely to get a tax deduction. If you are running a business via a company then you are only getting 30 percent back. If you want a $100,000 tax deduction then I will gladly invoice you & accept payment. Why spend money when you only get a fraction back? Don’t get caught out by the fancy marketing of retailers in coming weeks. Always think of my A-B-C motto … Absolute Bloomin’ Cash.

8. Pay employee super

In order to obtain a tax deduction in the 2010 financial year for employee superannuation contributions, the contribution must to be received by the superannuation fund by 30 June 2010.

9. Private company loans to shareholders

If you have borrowed funds from your company ensure that the appropriate principal and interest repayments are made by 30 June. Non-compliance with the strict ATO rules will result in the entire loan amount being deemed as an unfranked dividend paid and taxed at marginal rates.

The private use of certain company assets (such as boats and cars) is now also potentially caught by the taxman unless a market rental fee is paid.

10. PAYG instalments

If business has been tough this tax year consider varying the PAYG instalment for the June 2010 quarter.

Tags: Small Business

Author: Mr Taxman

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