How to minimise your tax
The most effective way to minimise your tax in the next financial year is to keep good records.
Come tax time, it’s important to make sure you have all your receipts and records in order for the financial year just gone. If you haven’t been the most organised person this last financial year, don’t worry: right now is the perfect time to plan for the year ahead.
To ensure you get the most out of your tax this year and every year, consider getting your tax done by a registered tax agent. Not only do they know all the tips and tricks on how to legally minimise your tax liability, they can help you plan for the year ahead and implement strategies and guidance for tax compliance that will be beneficial to you as a micro business owner. A good tax accountant will know all the latest laws and regulations, and because of the regular changes to the Tax Act it’s important to keep up-to-date. What’s more, the fee itself is tax deductible so it’s a win-win situation.
Here are some handy tips that will make certain you have the right information when it comes to legally minimising your tax liability as a micro business owner.
Calculating your car usage
Many micro business owners use their car for work related activities that are essential to earning an income. If this is the case then you can claim car usage. There are four methods you can choose from to work out the amount you can claim for the use of any car.
- Method 1 – cents per kilometre
- Method 2 – 12 per cent of original value
- Method 3 – one third of actual expenses
- Method 4 – logbook
If you travel less than 5000 kilometres in a financial year, you can use either Method 1 or Method 4.
"If you haven’t been the most organised person this last financial year, don’t worry: right now is the perfect time to plan for the year ahead."
If you travel more than 5000 business kilometres you can use any of the four methods available. Be sure to choose the method that will give you the best result, but make sure you keep all the appropriate records.
There are so many reasons why it is crucial to keep all your business related receipts. Not only do receipts provide written evidence of your income and expenses and help you and your tax agent prepare your tax return, they also ensure that you are able to claim all your entitlements, effectively legally minimising your tax liability.
There are many deductions you may be overlooking as a micro business owner, especially if you work from home.
A legitimate deduction can be claimed on most business-related expenses. If the expense you incur is essential for the running of your business, then in real terms it is a cost to your business.
You can claim a deduction for most expenses you incur for the everyday running of your business in the same income year you incur them. For more information on what you can claim, Brad Callaughan’s article, “What Expenses can I claim?” points out some key expenses, while my previous article “Tax deduction tips for home-based businesses” covers expenses relating to people who work from home.