How Can You Reduce Your Taxes for Your Small Business?

When it comes to running your business, there are tax rules and regulations to consider. The tax rate for businesses with less than $50 million turnover is 27.5% if 80% or less of the assessable income is passive income.


If you’re wondering how to reduce your small business tax bill, here are some ways you can do that:


Get an Instant Deduction


The Federal Government passed into law an extension of the instant asset write-off concessions in October 2020. Here’s how the extension applies:

  • 12 March 2021 to 30 June 2021: New or secondhand depreciating assets that cost less than $150,000 can be written off by businesses with an aggregated turnover of less than $500 million.

  • 6 October 2021 to 30 June 2022: Companies with an aggregated turnover of less than $5 billion will have 100% tax-deductible for their full cost.

  • 6 October 2020 to 30 June 2022: New or secondhand eligible depreciable assets are 100% tax-deductible for their full cost if a business has an aggregated turnover of less than $50 million.

  • 31 December 2020 to 30 June 2021: Secondhand eligible assets less than $1,500 are 100% tax-deductible for their full cost if the business has an aggregated turnover between $50 million and $500 million.

At the end of the 2021 financial year, companies can deduct the balance of their small business pool when they have an aggregated turnover of less than $10 million.


Take Advantage of Deductible Super Contributions


For all individuals, the concessional superannuation is $25,000, and it’s crucial you don’t go over that limit. For the contribution to be counted towards the employee’s contribution cap for the financial year, the fund must be received by 30 June.


Defer Your Income


You need to time your income and expenses during tax season, which means deferring your income into the following tax year. Even though you still need to pay tax on what you’ve earned, you save money in the meantime. You can use accrual counting to stay on top of your income and expenses.


Eliminate Bad Debts


You can be eligible for tax deduction on bad debts if you can prove that the debt has been written off by 30 June, and it was shown as income original. Do this in writing, as this can serve as evidence that the debt was written off before the end of the financial year.


Revisit Your Business Structure


In Australia, there are four commonly used business structures:

  • Sole trader

  • Partnership

  • Company

  • Trust

It’s vital you understand the responsibilities of each structure because this impacts the tax you’re liable to pay, as well as asset protection and ongoing costs. By revisiting your business structure, you will determine if it’s still suitable for your business’s current situation.


Time to Minimise Your Business Taxes


No one likes to pay more taxes than they have to. While a lot of small business owners think about how to maximise profits, many forget to keep track of the long-term benefits from properly deducted expenses. Hopefully, these tips will help you get on the right track to reduce your taxes.


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