The months of May and June are always busy times in the world of tax and accounting.
Not only are we finishing the last of our tax returns for the 2018 financial year, but we are tax planning with clients for the 2019 tax year.
Why Is Tax Planning Important?
It provides each business the opportunity to assess their potential tax situation PRIOR to 30 June each year. This gives a business time to either plan for the expected result and/or implement legal strategies to reduce their tax. Finding out you have a larger-than expected tax bill after 30 June is too late – because there is nothing you can do to reduce it.
How Does The Tax Planning Process Work?
By early May, we should have your business results up until 31 March – the end of the third quarter. Based on these figures, we can usually project your annual profit with a fair degree of accuracy. To do this we consider historical data from previous years, plus an estimate from the business owner/s of their projected last quarter results. And we do not just consider the figures in the business entities, but we include how that profit will potentially flow through to other entities or onto individual tax returns.
Uncovering Tax Opportunities
Sometimes there are opportunities within the business to reduce your taxable income. These can include pre-paying expenses; writing off bad debts, or obsolete stock and equipment, or contributing extra into superannuation for company directors. The immediate write-off of business assets up to $30,000 also could be useful to pick up new assets needed by the business and claim a full tax deduction prior to 30 June.
Broader Value Of Reviewing Your Numbers
Smart business owners will take the time to stop and assess how their business is travelling as year end nears. How do the figures compare with previous years? Are there any line items in the accounts that tell a story? For example, has any particular source of income greatly increased or decreased? Have expenses like wages or cost of goods sold increased and reduced your profitability? What about the balance sheet? Is your cash position getting low? Are trade debtors or trade creditors increasing? Are your tax debts or long term liabilities increasing? Picking up on trends in your numbers – good or bad – can help you put plans in place and set a strategic direction to navigate your business in the right direction.
Front Foot Business Review
This end of year process can be taken even one step further, via a formal business review. Called a Front Foot Business Review, we run through a comprehensive checklist with management, designed to check whether the operational, strategic, marketing, risk, insurances, partnership/directors agreements, leases and succession plans are in place and current. This review almost always highlights at least one or two areas that require work to be done.