June 2019 will be upon us before you know it. Here is what you need to do:
- Reconcile your books to end of Feb ASAP
- Estimate what is coming in vs what you are spending for the March to June 2019 period
- Sit down with your accountant and predict what the profit is going to be, and what it means tax-wise. There are a number of moving parts to this:
- The profit figure – is the sum-total of the actuals from July to February and the budget from March to June. What…you don’t have a budget? That is like playing football with a blindfold on! See our blogs: https://www.risesolutions.com.au/blog/wanting-small-business-help-and-looking-to-build-a-small-business-plan/ and https://www.risesolutions.com.au/blog/planning-prevents-poor-performance/
- How much PAYG (provisional) tax you’ve paid in advance…ie how much tax you have in the kitty.
- What options you have to reduce tax (that is where the accountant comes in).
- All of which will produce the amount left to pay (or refund) in March/April 2020. How good would it be to know how much you are up for – 12 months in advance! Heaven.
There are a couple of leg-ups that the government has given us this year
- the main one being you can immediately write-off any expenditure of $25,000 or less (ex-GST) in one hit (was $20,000…now lifted to $25,000).
- Superannuation is always a winner…but the rules are a bit onerous…you need to plan ahead to get it right and maximise the deduction.
- If you are a farmer, you can claim fencing and fodder storage expenditure in one hit also…and there is no limit…provided they are installed and ready for use after 19th August 2018. This covers pretty much everything, except for stockyards, pens, and portable fencing. Definitely worth thinking about, especially as spending on infrastructure is always put off due to the size and the usually disappointing tax benefits. This is one of those rare years where you actually get a bang for your buck.
I’ve made it sound easy…there is the usual “fine print” so you do need to talk to a professional about it. There is always an opportunity to defer income or bring forward expenditure…but you need to do it right…and you need to weigh up whether it is worth it. That is what the discussion should be about. If you have to spend 3 times the amount of tax you are trying to save, you need to ask yourself if this is worthwhile…and does it fit in with your financial goals? If your main goal is to reduce debt, you might be better off paying a bit more tax, and applying the extra cash towards getting that overdraft or term loan down instead. If you already have alot of debt, then paying it down will shield you from future economic downturns. If you just blindly try to minimise tax, you may be setting yourself up to fail later on.
On the other hand, if you are trying to grow your business, maybe there is a case for putting on more staff or investing in a piece of equipment. There is no “right” answer…it all depends on your circumstances and what you are trying to achieve. The main benefit you will get out of this is you’ll know how much tax you are up for – 12 months in advance – and also you’ll know why you are doing things and also why you are not doing things. It will help you relax and focus on what is important…AND it will help you allow for it in your cash flow planning.
Call us to discuss. We love working all this out for you.