Small Business Tax Tips
Lodging a small business tax return can be complex, time consuming and stressful. Unfortunately, mistakes can be costly – both financially and in terms of lost time. So, what are the common tax errors to look out for?
Common Mistakes in Small Business Tax Returns
There are three common mistakes that small businesses make when lodging tax returns:
- Failing to declare all income
- Not having evidence of small business expenses claims
- Claiming personal expenses as small business expenses
Incorrectly reporting income in a small business tax return is the most common mistake made by business owners. It can occur as a result of inadequate bookkeeping or because the business owner is unclear as to what constitutes “income”.
As a starting point, most income you receive as a small business owner is assessable income for tax purposes. Your assessable income should include:
- all gross income (i.e. before tax) from everyday business activities, including internet, cash and electronic (e.g. EFTPOS) sales, both within Australian and from overseas.
- all other business income, including capital gains, changes in trading stock value, any transactions not part of everyday business activity that are intended to make a profit, and cash prizes received by your business.
However, some payments are not included as assessable income for income tax purposes:
- Goods and Services Tax (GST) you have collected
- Inheritance or gifts
- Prizes and awards not related to your business
- Earnings from a hobby
- Gambling wins (except for betting or gambling businesses)
- Borrowed funds
- Money you contribute as the business owner
- Some disaster recovery grants
Identifying and keeping track of assessable income for tax purposes can be challenging for a busy small business owner. However, it is critical to accurately report income, not only to ensure that you have met your tax obligations, but also to maximise tax offsets – and provide peace-of-mind.
A key reason for inaccurate income reporting is ineffective bookkeeping. Successful business operations depend on good records and bookkeeping, use of technology (such as point of sale software, bookkeeping and accounting systems), and having a reliable and expert small business tax accountant.
Keeping up-to-date records of income and expenses will not only help you manage cash flow, but will help you accurately complete and lodge your small business tax returns and meet your tax obligations. Seeking help from a bookkeeping service can take the pressure of you, and can ensure that your records are accurate and up-to-date.
Claiming private expenses as business expenses
Claiming private expenses against your small business can be costly! To avoid this common mistake, it is important to follow these three guidelines:
- The expense must be for your business, and not yourself or your family;
- If you have expenses for business and private purposes (e.g. motor vehicles, electricity costs for a home-based business, sightseeing costs while traveling for business), you can only claim the business-related portion,
- You must have a record of the expense.
To help you avoid these common mistakes, it is worth seeking the advice of an expert small business tax accountant. They can ensure that you avoid the pitfalls – allowing you to focus on growing your business.
FC Accounting specialises in small business accounting, taxation and bookkeeping, and we are dedicated to supporting businesses across the North Shore to grow to their full potential. We offer a personalised service with a range of business packages to match your needs. For small business accounting, tax advice, bookkeeping and advice designed to suit your business, contact FC Accounting today!