How To Prepare Taxes for Small Business
Preparing for taxes can be daunting when launching or managing a small business. However, it's crucial for businesses and sole traders to grasp your tax duties and set aside funds for them. Whether you're a newbie or have been in the industry for some time, revisiting tax preparation for small enterprises can enlighten you on the tax obligations in Australia. This in-depth guide covers all aspects of preparing for your business tax return and highlights how you can use Thriday's AI-driven platform to automate much of this process, making tax time more manageable and efficient.
Why is Preparing for Taxes Crucial for Small Businesses?
You know what they say about the certainties of life right?
When running a small business, it's essential to fulfil your tax obligations and stay compliant. That shouldn't mean you need to be an expert accountant or bookkeeper though.
Tax compliance can sometimes be intimidating and often time-consuming, but ensuring that your business meets its obligations and avoids penalties is crucial. By proactively planning and organising your finances, you can optimise tax relief, make informed financial decisions, and ensure you're not leaving money on the table.
With so many things to consider, including BAS lodgment, tax deductions, and tax claims, it's easy to feel overwhelmed. However, there are ways to make tax compliance easier, including automating your tax processes with Thriday. With Thriday's all-in-one financial management platform, you can ensure that all your financial data is categorised, prepared and easily accessible in one user-friendly app - ready for tax time.
This guide will walk you through the steps to efficiently handle taxes for small businesses. But first, let's understand the tax basics:
Understanding Business Taxation
Fundamentally, the tax liability of your business is contingent on its taxable income, which is derived by subtracting deductions from your assessable income.
- Assessable income: This predominantly encompasses the pre-tax earnings of your business. This includes the total income from your routine business operations, such as sales, and other non-standard business income sources, like capital gains. Notably, this doesn't factor in the GST on your sales or GST credits.
- Deductions: This pertains to the expenses you incur in the course of operating your business.
With Thriday's Automated Accounting and smart GST recognition, you can automate away many of the tedious BAS and tax calculations, and the platform's rules-based automated personalised deductions system can help identify the correct deductions you can claim to make sure you get everything you're entitled to.
We will simplify the tax process in detail as we go, but if you want to leverage the power of automation to eliminate financial admin and make tax time a breeze, find out how here.
Essential Business Taxes in Australia
Here's a snapshot of the primary business tax categories in Australia, which will be elaborated upon later in this piece:
- Company (Income) Tax: This tax is levied on all officially recognised companies in Australia, encompassing resident and non-resident companies, corporate unit trusts, and public trading trusts.
- Capital Gains Tax (CGT): This tax is applied to the gains accrued from the sale of an asset.
- Goods and Services Tax (GST): A tax imposed on various goods and services within Australia.
- Payroll Tax: Employers deduct a specified amount from the salaries of their employees and remit it to the government on the employee's behalf.
Additionally, businesses may also need to account for:
- Fuel Tax Credit (FTC)
- Fringe Benefits Tax (FBT)
- Land Tax
Thriday's automated accounting and bookkeeping system works to categorise your income and expenses to provide a summary of your estimated tax position throughout the year. In addition, the platform can automatically generate many of the critical financial reports needed to complete your annual tax return.
Taxation for Sole Traders
Being the predominant business model in Australia, you might be curious about the tax obligations of sole trader small businesses in the country. In this setup, instead of adhering to the company tax rate, sole traders align with the individual income tax rate for their tax filings. The guidelines for both CGT and GST remain consistent with those for companies.
Additionally, sole traders can qualify for small business tax concessions, provided they fulfil the necessary criteria.
You can find out more about how to file taxes as a sole trader here.
Tax Preparation Guide for Small Businesses
Having established the basics, let's delve into the specifics of tax preparation for small businesses. Here are six pivotal steps to guide you:
1. Acquaint Yourself with Tax Submission Dates and Reporting Protocols
Navigating tax for small businesses in Australia can be tricky, with a number of different regular returns required, each with different reporting protocols and requirements. These are the reporting protocols to be mindful of when it comes to tax time:
- Business Activity Statements (BAS): The ATO mandates that businesses furnish a business activity statement (BAS) either monthly, quarterly, or annually, provided they qualify for an annual GST return. With Thriday, you can preview your BAS report before lodgment and choose between self-serve or accountant-assisted lodgment options.
- Payroll Reporting: Businesses with a staff count of fewer than 20 are mandated to submit their reports to the ATO using the Single Touch Payroll mechanism.
- Yearly Financial Reporting: In the Australian context, the fiscal year for taxation purposes extends from 1 July to 30 June, and all businesses are obligated to submit an income tax return for this period. If you are operating as a sole trader, you include your business revenue within your individual tax return.
- JobKeeper Payments: JobKeeper payments are subject to taxation and must be reflected in tax returns. The method of reporting these payments is contingent on the business structure. Up-to-date information on this can be found here.
- Cash Flow Boost Payments: While Cash Flow Boost credits are not subject to taxation, the way these credits are reported in your returns or financial statements is influenced by your business structure.
According to the Australian Taxation Office (ATO), the submission timelines for tax returns are influenced by the client type, the designated lodgement date, and the actual date of submission.
With Thriday's Lightning Lodgment feature, you can get reminders and lodge your BAS from the app in minutes, ensuring you meet all ATO deadlines. To ensure you're in sync with these dates, we recommend checking the ATO's official website for a comprehensive list of submission and payment dates here.
2. Understanding the Taxes Your Business Will Incur
The tax liability of a small business in Australia varies based on its operational structure, the nature of its activities, and its revenue streams. Initially, it's essential to recognise the four primary tax categories that businesses should be mindful of.
- Company Tax: Often referred to as income tax, company tax is levied on every registered business entity in Australia.
- Capital Gains Tax: Capital Gains Tax (CGT) becomes applicable when a profit is realised from the disposal of an asset. This tax is incorporated into a company's assessable income and is computed based on the same rates as company tax.
- Goods and Services Tax: Goods and Services Tax (GST) imposes a 10% tax on consumer goods and services within Australia. Consequently, the financial burden of this tax is borne by consumers.
- Payroll Tax: Every state or territory has its own set threshold and tax rate concerning payroll tax. You can find the specific rates for each state here.
3. Organise Your Financial Documents with Thriday
Before you proceed with your tax submission, ensure all your financial documents are at hand. This encompasses:
- Profit and loss statement
- Financial position statement (Balance sheet)
- Purchase receipts
- Statements from banks and credit cards
- Previous year's business tax return
- Predicted tax payments
- Details of asset acquisitions
- Financial records
- Business partnership contracts
- Asset depreciation charts
Maintaining meticulous records can simplify the tax preparation process immensely, and with Thriday, you can easily automate the process of categorising transactions and generating many of your critical financial documents with the simple click of a button.
Thriday also securely stores your relevant financial data digitally in one place, keeping it safe from potential loss or harm and always readily available and accessible from anywhere at any time. Remember, for taxation considerations, it's essential to retain crucial records for a span of five years.
4. Understand Your Deduction Eligibility
When preparing taxes for small businesses, it's crucial to identify the deductions you're entitled to.
Categorise your expenses into:
- Immediate Deductions: Deductions can be made for everyday business expenses such as advertising, bank fees, training, and utilities. Additionally, costs related to maintaining a home office, including rent or mortgage interest and operational expenses like electricity, are deductible. Business-related travel expenses are also claimable.
- Long-term Deductions: The ATO allows businesses to claim deductions over multiple years for specific expenses. These include borrowing costs, asset depreciation (with periods ranging from five to 20 years), and a 2.5% annual deduction for capital works on investment properties over 40 years. These provisions help businesses spread out their tax benefits over extended durations.
- Non-claimable Expenses: Certain expenses are not deductible, such as personal expenses, costs incurred before the business commenced (with some exceptions like initial legal and licensing fees), non-taxable staff income, specific non-deductible costs like fines, and GST credits if they have been claimed separately.
Claiming all eligible deductions is the best way to reduce your business's tax liability in Australia. For this, Thriday's Automated Accounting features personalised deductions that can help you identify what you can claim so you don't have to navigate tax time alone.
5. Explore Additional Tax Concession Opportunities
Australia offers a range of tax concessions for businesses, including income tax concessions, small business CGT concessions, and GST and excise concessions. By identifying which concessions your business is eligible for, you can further reduce your tax obligations.
6. File Your Tax Return
Following this guide should have you well prepared to handle your small business's tax obligations. That just leaves the last step: filing your returns!
Thriday's Lightning Lodgment is the easiest way to keep on top of lodging your BAS statements. With both self-serve and accountant-assisted options, you can lodge your BAS monthly, quarterly or annually in minutes, all within the app!
When it comes to lodging your annual tax return, your options include:
- Engaging a registered tax agent.
- Using myTax online, suitable for sole traders.
- Utilising standard business reporting software for companies, trusts, or partnerships.
- Submitting a paper-based return.
- Sending it via mail. If you opt for a tax or BAS agent, ensure they are officially registered with the Tax Practitioners Board (TPB).
As you can see, you can choose to either file the return yourself or engage a professional, depending on the complexity of your business' financials. With Thriday, the choice is always yours, but assuredly, having all your data well stored and organised into key financial reports in the one platform makes it much easier whichever route you decide to go.
If you are interested in accountant-assisted lodgment options, we are proudly partnered with POP business - award-winning small business tax accountants - who can help ensure accuracy and peace of mind.
Key Takeaways: Revolutionising Tax Preparation for Small Enterprises with Thriday
As we've explored the realm of tax preparation for small enterprises, the significance of a streamlined, efficient approach becomes undeniably clear. Amidst the many tax obligations and intricacies, Thriday emerges as the perfect AI assistant for bookkeeping and accounting for Australian small businesses.
Meticulously crafted to cater to the unique tax and financial reporting needs of the Australian small business landscape, Thriday leverages the power of AI to introduce automation and simplicity to tax preparations formerly riddled with complexities and manual processes. With features like Lightning Lodgment and Automated Accounting, Thriday ensures that businesses are not just compliant but also empowered with real-time insights.
From effortlessly organising financial documents to ensuring timely lodgments at the click of a button - Thriday eliminates the challenges, ambiguities, and most crucially, the TIME consumed in tax management. Embrace the future of tax preparation with Thriday, reclaim your Sunday nights spent preparing tax documents and forget about financial admin.
Thriday's holistic approach to tax management for small businesses is about more than just simplifying tax; it's about redefining the entire tax experience. With Thriday, tax time becomes relax time!