Each year as businesses prepare to file their tax, many small business owners are making easily avoidable mistakes. By ensuring you are ready for tax season and following the correct procedures, you can save your small business money. While the Australian Tax Office is helpful and informative, they cannot file your tax for you. So, with this in mind, let’s discuss how you can simplify your yearly tax preparation. These are the five common mistakes small business owners make at tax time.
Not Preparing in Advance
Preparing for tax season starts with knowing all your submission dates and precisely what documents your business needs to submit. Each business is unique in its structure, income, expenses, deductions, concessions, and annual turnover. These factors will affect how you file your tax return and knowing this ahead of time makes all the difference. When you plan ahead, you have the time to seek advice if and where necessary ahead of your submission dates.
Not Maintaining Your Records
Even small businesses have a fair amount to organise ahead of tax season, but keeping your documents organised and filed throughout the year will give you the advantage. Maintain a carefully thought-out filing system to track your financial activity throughout the year and streamline your yearly tax return. Remember to keep your records for five years, in case the ATO asks for supporting documents.
Important documents to keep track of:
- Expense invoices
- Sales receipts
- Bank statements
- Credit card statements
- A list of your creditors and debtors
- Records of vehicles
- Records of wages, superannuation, tax declarations, and contracts for employees
- Any assets purchased
Not Hiring a Tax Specialist
During tax season, a tax specialist who understands your business is your not-so-secret weapon. A good tax specialist knows the fastest solutions to your tax problems, they know the process of submitting your tax returns and what deductions you can claim, and they are up to date with any changes in the tax legislation. The amount of money you will save by using a tax specialist is undoubtedly worth what you may spend hiring them.
Not Paying Estimated Taxes Throughout the Year
For small businesses especially, making prepayments is a great way to manage your cash flow and minimise any stress you may have regarding your annual tax return. If you choose to make prepayments, you can do so at any time, as often as you want to. Using tax calculators, you can work out your expected bill and request a refund at the end of the tax year if necessary.
Using the Wrong Accounting Software
If you aren’t already using accounting software or are using the wrong software, you’re making a big mistake. Incorporating accounting software into your bookkeeping routine will streamline your process, minimise human error, and save money. Make sure your software offers the features and functions your business relies on, such as Single Touch Payroll integration, and it is scalable. If you’re not using the right accounting software, you could be wasting money paying too much tax and spending too much time on your taxes.
Tax time needn’t be something to dread; you will sail through tax season with some foresight and preparation. Now that you know how to avoid these five common tax mistakes, you can focus on growing your small business and keeping things running smoothly. For advice on accounting and business software to help you, get in touch with Arrow.