It's that time of year again - top tax tips
2/06/11: It's that time of year again - top tax tips - Tax is scary if you are not "in the know" and in business the last thing we need is negative financial surprises. I've learnt through the years that preparation is everything. Grab the bull by the horns and get organised and know what your liabilities are — prepare well. Here are my tips for tax time to make your 2011 end of financial year as pain- free as possible.
Your business — your responsibility
Tax and your business is your responsibility. My first tip is to do your research, meet with your accountant early and know what's required. The Australian Taxation Office (ATO) doesn't react well to pleading ignorance. Hop on the internet, contact the ATO, your accountant or experienced taxpaying business mentors and become comfortable with tax and tax terms. My mantra is to find honourable people who have done it before and learn the quickest and best way from them.
My biggest tax blunder occurred years ago when I received a bill for $30,000 worth of unexpected payroll tax after my payroll headcount moved beyond the payroll tax threshold for the first time. My accountant and I had not discussed payroll tax before. The business was growing and I hadn't heard of payroll tax. To someone as organised as I am and a budgeter, it was a cash flow shock and immediately altered my approach to taxes.
You can save yourself from similar shocks by regularly speaking to your accountant. I meet with mine quarterly, occasionally monthly. Keep your accountant up to date with your business and ask lots of questions about record keeping and tax planning. Find an accountant who is willing to support you all year round — not just touch base in June.
Like most things in life, if you know what you are up against it's much easier to deal with. The buck stops with me, so I make it my business to understand reports and statements. Here’'s a quick list.
The BAS (business activity statement (BAS) is a statement businesses use to report to the ATO. It includes your GST obligations, and also includes pay as you go (PAYG) instalments, PAYG withholding and fringe benefits tax (FBT) instalments. Depending on the size of your business, the BAS and PAYG will need to be paid monthly or quarterly. Check with your accountant on this. Penalties apply if lodged late!
FBT is a tax payable for any benefit provided by an employer to an employee, or their associate. It is paid by the employer at a rate of 46.5 percent, which is the highest marginal income tax rate combined with the Medicare levy.
Finally there is payroll tax. A state and territory tax on employing staff, creating jobs — insane, I know. This tax year the threshold for being eligible to pay payroll tax is $658,000 in NSW, so if your business is growing towards the relevant figure in your jurisdiction you need to get prepared to pay an extra tax.
Tax days come throughout the year, so be prepared. The ATO provides a user- friendly computer tool that builds a 12-month calendar to help SMEs plan and manage tax and therefore cash flow obligations.
My best tip is to create a separate savings account where you can deposit your tax money monthly. Your taxes are then accumulated ready to pay, which makes budgeting — and peace of mind — easier. Once you deposit money into the account, consider it to be untouchable and not to be spent. Come tax time, you will be thankful your taxes are saved and ready to go.
"Building the relationship is what it's all about," accountancy firm Lister Mason's principal Stephen Mason says.
"If your accountant doesn't call you back, you know where their priorities lie. Find an advisor who takes a wider interest in your business and maximises your business and taxation choices."
Doing business means dealing with paper. My staff and I are continually trying to cut down the amount of paper stored in the office. Efficient filing and handling of paper once is important. Being able to find a document — possibly one or two years later — can be a nightmare without an effective filing system. Time is money!
Business is tough enough without unexpected surprises. Here are my top questions you should ask your accountant to prepare yourself for tax time:
Which taxes are applicable to you and your business?
When are they due to be paid?
What is a tax deduction? When and how can they be used?
What should you be recording? And how?
How does the paperwork need to be recorded and filed?
Putting off tax planning until the last minute or not having tax as a priority leads to oversights, money shortages and unnecessary panic. Don't let taxes become a traumatic experience this year. If concerned ring the tax office. On the whole they are motivated to keep our businesses going. I've always found them helpful. If you need help, ask.
To view Sharon's blog on Ninemsn, click here.
