When it comes to the countdown to the end of the financial year, it means that you should start preparing by focusing on your end of financial year position. Now is the time to undertake tax planning that is appropriate for you and your business.
It’s a big mistake to leave your financial planning to the last minute. Making no decision or rushed decisions can lead to poor outcomes. Here are five things you need to do to get with the tax time process.
1. Health and hygiene tax list
There are lots of little things that need to be attended to and which can add up to large amounts in tax savings. These can include:
- writing off bad debts
- maximising or minimising stock valuation
- declaration of dividends and director fees
- prepayments
- income deferrals
- trustee resolutions to appoint income
- maximising depreciation charges
- superannuation payments
2. Look for the bigger tax planning opportunities
Beyond these health and hygiene opportunities, there may be larger tax planning opportunities that should be considered.
This could include being eligible to claim R&D tax concessions (in IT and traning for example), taking advantage of assessed tax loss, or certain grant eligibility.
All of these opportunities are time sensitive and time limited. The things you do during tax time before the deadlines could make a significant difference in the benefit obtained.
3. Permanent benefits or timing advantage
Consider whether your decisions are creating a permanent benefit or simply deferring the tax liability to a later date.
Both can be useful; however, permanent benefits will ultimately be of more value. This is relevant if you have to create a hierarchy of the options. You may not be able to do everything possible in one tax period and it might need to be spread out.
4. What are the cashflow implications
This consideration is often under-appreciated. Some of the elements of your tax planning will require that you spend money, bring forward expenditure or defer income.
These will all have an impact on cashflow and you need to ensure that creating the best tax outcome does not in itself create a short-term cashflow problem.
Calculate the funding impact of your choices, and if you need cashflow support from your bank then be sure to make arrangements early on. You need to map out how much you need, how long you’ll need it for and what is being covered.
5. Factoring in the risks
Keep in mind there could be certain risks with the decisions being taken. These could include tax, funding and business risks. Tax benefits always need to stack up on the risk-to-reward matrix. Quantify the benefit and assess any risks.
You should take advice on your tax planning. Spend some time with your accountant and map out a plan that works for you.