While many businesses may be experiencing a downturn in cash flow at this point in time, the business may still have an overall profit for the 2020 financial year. This only means one thing….there will be tax to pay.
So to limit any tax payable, we’d suggest you start looking at tax planning before it’s too late. There are a number of ways you can minimise tax (legally of course) without spending money. We’ve listed some of these below:
- Review your outstanding debtors. Are these all collectible? If not, then you may consider writing off any that are bad debts
- Bring forward any expenses into the 2020 financial year. This could include prepayment of regular expenses to increase tax deductions.
- Look at stock levels and also consider if any stock is obsolete. Obsolete stock can be scrapped or written down to a lower value
Other ways available to small business also include:
- Deferring income. If your cash flow permits (and you report on an accrual basis), consideration should be given to deferring earning income to the 2021 financial year.
- If you’ve received income in advance, ensure this income has actually been derived. If it hasn’t, then it may not be taxable in this financial year
- If cashflow allows, consider paying staff bonuses prior to 30 June 2020.
- Ensure all June 2020 quarter super is paid before 30 June 2020 (receiving fund actually needs to receive the contribution before 30 June 2020), to be able to get a tax deduction in the 2020 financial year for the super contributions.
- If your company has given you or an associate a loan during the 2020 financial year, ensure this has been repaid before 30 June 2020 to avoid Division 7A directors loan rules
- If you operate your business through a discretionary trust, ensure you have prepared a valid distribution minute prior to 30 June 2020 which outlines how income for the year will be distributed
- As general advice only, additional contributions to superannuation may be available
If you haven’t checked your 2020 figures yet, we would suggest the above is a timely reminder so you can minimise tax payable for the 2020 financial year.