9 Tax-saving Tips For Small Businesses

If you run a small business, the amount of tax your business pays could make or break your profit margins. Ensuring that your business is tax-efficient is essential to staying competitive in challenging market conditions. Read our top 9 tax-saving tips for small businesses looking to reduce their tax burden.

1. Get your financial accounts organised

Organising your small business properly is crucial to saving money in the long run. Keep your business accounts separate from your personal accounts and record expenses, assets, and other tax-relevant information accurately. Make sure that your business accounts are easy to access and clearly organised so that you can find the information you need when you need it.

2. Pre-pay your expenses

Pre-paying your expenses is a simple way to save money. This means paying for goods or services, such as rent and insurance, before you use them in order to reduce or eliminate the amount of tax you pay on the expense. It’s possible to deduct up to 12 months of the coming year’s expenses in the current tax year.

3. Maximise your superannuation contributions

Another source of tax savings is your superannuation. Superannuation contributions are tax deductible and can be made by salary sacrifice, where you reduce your taxable income by putting money into super accounts. Maximise the amount you pay into your super to reduce your tax burden today.

4. Write off unrecoverable debts

As a small business owner, you can write off unrecoverable debts. Unrecoverable debts are business debts that you cannot claim a tax deduction for. Examples of deductible unrecoverable debts include bad debts, loans to associates and other related parties, as well as fines and penalties.

5. Invest in ESICs

Invest in new companies and you can benefit from the ESIC (Early Stage Investment Companies) concession. This amounts to a 20% tax offset for the amount of money that you invest in the ESIC. Such investments are also free of capital gains tax for 10 years.

6. Deduct motor vehicle expenses

If you drive your personal vehicle regularly for business purposes, you’re able to claim the tax back on the vehicle running expenses during such trips. For the 2022-2023 financial year, the Australian Taxation Office (ATO) allows you to claim back a set rate of 78 cents per kilometre driven for a maximum of 5,000km per car in a year.

7. Write off $150,000 of assets

All businesses are able to immediately deduct the business assets that they purchase during a given tax year from your assessable tax, up to a maximum value of $150,000. It’s essential that all businesses make use of this allowance because it can lead to significant savings.

8. Carry out a stocktake

Carry out a stocktake to gain up-to-date information on your business’s inventory and write off stock that’s damaged or obsolete. You may also be able to write off the cost of certain assets that have depreciated in value.

9. Claim the 199A Qualified Business Income Deduction

The 199A Qualified Business Income Deduction is a new tax deduction that allows you to deduct up to 20% of your sole proprietorship’s qualified business income (QBI). To qualify as a QBI, your business must be a C corporation, S corporation, or partnership. You can also claim this deduction if you’re an employee who gets paid with wages from an eligible trade or business.

Get in touch

If you’re looking to reduce your small business’s tax burden and maximise profits, our financial advisors can help. Contact our financial planning team today at 02 6884 4680.

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