It’s tax time once again – and you can save considerable stress, time and money by avoiding these common mistakes, writes financial advisor Helen Baker.
Certain mistakes are common because they are easy traps to fall into. Thankfully, though, avoiding them is also easy – provided you know the warning signs to look out for.
As well as substantial savings, avoiding these tax mistakes may even give you a jump on less diligent competitors.
Mistake #1. Sloppy record-keeping
It’s surprising we still discuss this in 2022, yet accountants and bookkeepers around the country are bracing themselves for shoeboxes full of receipts and patchworks of expenses and income.
Investing in good accounting software, taking photos of receipts as they come in, and tracking your spending centrally saves considerable time and money in the long run.
Poor recording keeping also means you’re far more likely to make other mistakes on this list.
Mistake #2. Mixing business and personal
Small business owners in particular often struggle to distinguish between business and personal matters.
The business is their life, livelihood and baby all in one. The work doesn’t stop just because you go home for the night.
However, blurring the lines can see you pay more tax than you have to. For example, Fringe Benefits Tax levied on what were actually personal expenses, or missing out on business deductions for goods labelled personal.
Mistake #3. EOFY shopping binge
Spending money just to claim a tax deduction is not good business.
Unless you really do need it in the short-term, you’ll probably be better off conserving your cash flow.
Mistake #4: Failing to check the calendar
Don’t overlook the power of using the calendar to your advantage.
Buying goods, issuing invoices, paying your salary – which side of midnight on June 30 you do all these things will determine whether they are counted in the current or next financial year.
Sometimes, bringing things forward or deferring them to July 1 can improve your tax position – both now and next year.
Mistake #5. Lodging late
Few of us get excited about doing our taxes. Yet putting it off can be a costly mistake.
It means any refund you’re owed is delayed – cash you and your business could use now. Or if you owe money, you may be charged interest and penalties on the outstanding amount.
Lodging sooner rather than later also means one less distraction from running your business.
Mistake #6. Forgoing super
Many business owners forgo paying themselves superannuation. Yet it’s often a lose-lose.
For you, this risks your retirement security by not diversifying your assets. Meanwhile, that extra cash in the business may increase its taxable income.
Mistake #7. Paying too much tax
Too many business owners inadvertently pay too much tax.
Unclaimed, or underclaimed, deductions are often the culprit – because receipts went missing, records are incomplete, or travel for work was not logged.
Then there are tax benefits, offsets and grants for which you may be eligible but don’t apply for.
Either way, it’s lost money. And what small business can really afford that?
Mistake #8. Not appreciating depreciation
For assets that haven’t been claimed under the instant asset write-off, annual depreciation is a must.
That may include equipment – cars, computers, furniture, machinery – as well as your fit-out, air conditioning, flooring, etc.
If you’re entitled to it, be sure to claim it in full.
Mistake #9. Double-dipping
Whether being sneaky or making an honest mistake, double-dipping on deductions is a common faux pas. One which the ATO has flagged it intends to crack down on this year.
If you realise an honest mistake and notify the tax office promptly, chances are there’s no harm done.
However, uncorrected mistakes could trigger an audit – a potentially expensive and time-consuming exercise. Worst-case scenario, you’ll have to pay it all back – with interest and penalties.
Diligence and honesty from the outset can save substantial cost and stress later on.
Mistake #10. Blind faith
‘Finfluencers’, unqualified tax agents, unregistered financial advisors, well-meaning friends and family … they may seem cheap or free.
Ultimately though, you’re risking your finances and your business with someone who doesn’t necessarily know what they’re talking about or how it applies to your business and current circumstances.
That way, you can be confident the advice you get is legitimate, current, and – most importantly – works in the best interests of you and your business.
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