When taxes roll around, it can become stressful, especially if you’re running a small business. You likely work extremely hard for your business. This means that the last thing you want to do is hand off your hard-earned money to the government. However, it is never too late to start implementing tips to reduce business tax.
There are many tax reduction strategies available right now to help you reduce tax as a business owner. Many businesses are paying far more tax than they actually need to be. Luckily, this post is full of ways to avoid that. If you are looking to reduce your business tax this year, check out the following methods.
Tips to reduce business tax
Now is as good a time as any to start implementing tax minimizations strategies. Here are ten successful and genuinely helpful tips to reduce business tax.
1. Claim any training courses
One thing that many businesses forget to claim is their educational expenses. Employers are able to claim a tax deduction for education expenses if they have a strong connection to the following things.
- An employee’s current employment
- Maintaining their skills and knowledge
- Improving their skills and knowledge
- The skills and knowledge required for their current role
- An increase in the employee’s income
2. Review the structure of your business
Within Australia, there are four most commonly used business structures. They significantly affect how you use these tips to reduce business tax. These business structures are:
- Sole trader
It is crucial for business owners to understand all of the responsibilities and requirements of each structure. By reviewing your current business structure, you will be able to establish whether or not it is still appropriate for your business’s current situation.
3. Write off any bad debts
One key thing to remember is that businesses are able to write off bad debts in order to claim a tax deduction and a GST credit on their BAS if they are registered for GST on an accrual’s basis. This can happen provided that:
- The debt owed is included clearly in your assessable income. It must be in the current financial year or earlier financial year.
- The business has tried to recover the debt to an extent and has exhausted any/all efforts for it to be recovered with no reasonable expectation of payment.
- The bad debt has been formally written off in the accounting records. This must be done prior to the end of the financial year.
4. Claim deductions for depreciating assets
If you are a small business earning under $10 million, you will be able to claim an immediate write-off. The amount can be up to $20,000 for eligible assets that you have:
- Started to use
- Have installed and are ready to use
- Paid for during a specific period of time
5. Apply the 15-year exemption
If you are running a small business, this is one of the tips to reduce business tax that may apply to you. You will become exempt from paying CGT when you dispose of the asset if:
- A small business owner aged 55 or older
- Retired or permanently incapacitated
- Have owned a business asset for at least 15 years
6. Use the 50% active asset reduction
Small businesses owners can easily reduce the capital gain on an active asset by 50%. An active asset is seen as a tangible or intangible asset used or held ready for use in the course of carrying on a business.
7. Apply the small business rollover
As long as a replacement asset is acquired within two years, you can defer the CGT on a capital gain. You can do this when you make a capital gain from selling an asset. This is one of the important tips to reduce business tax.
8. Keep a business vehicle logbook
Maintaining a logbook of your business vehicle for at least twelve weeks means that you can claim back vehicle expenses at tax time. As long as it is legitimated use of a vehicle, it is tax-deductible. This means that you should keep all receipts and invoices in relation to vehicle expenses. This can include things like petrol and maintenance.
9. Reimburse using an accountable
If you constantly reimburse your employees for things, consider doing so using a plan that meets IRS requirements. These things can include tools, entertainment, travel, and other costs. The plan is often referred to as an accountable plan. With it, the business deducts the expenses but doesn’t report the reimbursement as income to employees.
This then potentially saves the company employment taxes and lowers taxable income overall. This is yet another very important one of the tips to reduce business tax.
10. Use fringe employee benefit plans
Additional wages trigger employment tax costs for the business, however, this can be changed. If the business pays for certain fringe benefits for their employees, these taxes can be avoided completely. Tax-exempt benefits you can consider offering your employees include but are not limited to:
- Meals provided for employee convenience
- Long-term care insurance
- Educational assistance
- Transportation benefits
Why using these tips to reduce business tax will help you
When it comes to the many ways you can save on tax expenses, there are many different opportunities. With many businesses currently struggling with tax debt, ALC Commercial is here to help and provide you with the best resources possible.