Tips for Reducing Your Business Taxable Income

The first few operational years are vital to the longevity of startups and new small businesses. Finding ways to reduce your yearly tax bill legally is a great way to raise capital and make better investments. Check out our following tips:

Deduct Eligible Expenses

Operational expenses, such as electricity, heating and cooling, internet bills, mobile phone usage, equipment, and travel fees, are often deductible. Keep receipts for all eligible outgoings to minimise your liability.

Write Off Irrecoverable Debts

If you’ve made reasonable attempts to reclaim funds for a debt, it’s considered a bad debt. You must write off the debt in writing before deducting the amount from your tax bill.

Register the Right Business Structure

While your business’ registration must reflect the nature of your entity, clearly understanding the tax obligations attached to each can help you navigate the first few years. Here’s a breakdown:

  • Sole trader: The ATO charges tax rates of up to 45 cents for every dollar over $180,000, plus a 2% Medicare Levy.
  • Company: Companies pay a base rate of 25% on income, not including annuation contributions for employees.
  • Trustee: Beneficiaries pay individual tax rates on their share of the trust’s net income. The tax rates applied depend on the amount they earn.
  • Partnerships: Partners also pay individual tax rates on income.

Gift Aid Donations

Adding gift aid to a genuine monetary donation or gift can help you deduct the given amount when lodging your tax return. 

Streamline Tax Reporting

Implement strong bookkeeping and auditing processes to reconcile bank accounts and ensure you don’t submit a higher income than intended, as this can leave you waiting for a refund. Cash-basis accounting can also balance your accounts payable, so you always work with updated figures. 

Distribute Income to Trustees

If your trust comprises family members or trusted peers, consider distributing finances between beneficiaries at the lowest rate so you only pay the lowest individual tax rate possible. 

Use an SMSF

Self-managed superannuation funds have a tax rate of 15%, no matter what you pay. While this prepares you for a comfortable retirement, you can invest in savings without paying extra.

Claim Asset Depreciation

Depreciating assets, such as computers, vehicles, and machinery, naturally decline in value over the item’s life cycle. You can claim the depreciated value over time. Small businesses with less than $10m turnover will receive an Instant Asset Write-Off (IAWO) for each eligible asset costing less than $20k

Time Invoices Strategically

Delay invoices around June 30, the tax year’s final day, to after July 1, so the income passes over to the following year, giving you more time to build up your capital.

Make Voluntary Super Contributions

Although capped at a 15% rate, concessional contributions increase your superannuation fund and enable you to claim a deduction. 

Apply CGT Concessions

Concessions such as the small business 15-year exemption, 50% active asset reduction, and rollover initiatives reduce capital liability should you sell a business or asset. 

Prepare with Professional Accountants

Connect with one of Accounting Tax Solutions’ professional accountants to identify lucrative tax-saving opportunities and integrate modern accounting software into your everyday practices. 

Contact us to get prepared!