We are keen to minimise end-of-year tax liability for our SME. Are there legitimate ways to do this?
Daniel Hunt, managing director of Daniel Hunt & Associates, says there are a number of ways to legitimately reduce your year-end tax liability.
1. Review fixed assets. Assets on your books may hold no value or may be obsolete. Consider revaluing property and equipment.
2. Accelerate deductions and defer income. Certain prepaid expenditure (such as rent, insurance, advertising) can be deducted in the current year even though it may relate to future years. Review your major contracts to see if it is possible to defer income to the next financial year.
3. Make donations prior to year end. Companies are entitled to a deduction for donations made to approved charities.
4. Review your debtors. If debts are unrecoverable, make sure these are written off in your accounts.
5. Pay out employees within 63 days. Companies are allowed a deduction for amounts owed to employees, paid out within 63 days of balance date. This includes wages and salaries, bonuses and leave.
6. Minimise the value of your trading stock.
Every dollar of stock on hand at year end is treated as taxable income. Consider alternative valuation methods: cost price, replacement price or market selling value.
7. Accruals. Ensure you accrue for any liabilities outstanding at balance day (amounts owing for rates, electricity, etc). You can claim the amount as an expense.
8. Use tax concessions and exemptions. For example, SMEs can provide their employees with business tools (laptops, iPhones) and claim a deduction for these without being subject to fringe benefit tax.