As a small business, you must stay on top of your taxes and abide by the law as your business grows. Whilst organising your taxes can be daunting initially, it’ll become easier each time and is essential to running a business of any size.
Our guide details four important steps you need to know about handling taxes as a small business, ensuring you have guidance to refer back to when you reach this stage.
Know Your Business Structure
The first step to determining the taxes you should pay as a small business is to decide your business structure and ensure it meets your company’s needs. A business structure outlines who owns and operates a business. The most popular types of structures in Australia are;
- Partnership
- Company
- Sole trader
- Trust
If you’re unsure which structure applies to you, talking to a professional can help. Many small businesses operate as sole traders as it’s the cheapest and most straightforward way of running a company. To be a sole trader, you must be the sole owner and hold yourself legally accountable for all business aspects.
Of course, if the above doesn’t apply to you, you should check other structures and assess which is most fitting. It’s essential to outline your business’s structure, as each structure has slightly different guidelines regarding tax obligations.
Pursue Accurate Recording
Staying on top of financial documentation makes it much easier for you when the time comes to file reports. There are numerous ways you can keep records at a high standard, such as;
- Use digital systems for accounting and tracking sales to implement accuracy and eliminate human error.
- Enlisting the help of a professional to check your record keeping is the most efficient and reliable process.
- Conduct regular reporting checks to ensure all data is accurate, checking documents such as bank statements and receipts.
Prioritise Recording of Income and Expenses
The tax you pay will depend on your income and expenses, so recording these activities is essential to be as accurate as possible. All your business income should be exact, whether you receive cash or card payments, as data matching (a strategy employed by the ATO!) will catch you if you fail to report accurately.
Recording financial events as they occur, not after, will help you overcome inaccuracies. Guesswork isn’t acceptable when it comes to taxes, so record your income and expenses as they happen to ensure your reporting is exact.
Understand Deduction Eligibility
While paying tax is largely unavoidable, there are numerous tax deductions that can be claimed for some business expenses. This may include daily operating expenses, purchases, interest expenses on loans or depreciation of assets. However the rules around deductions can be complicated as businesses become more complicated!
Keeping accurate records will give your accountant a more reliable idea of your income and expenses, ensuring you receive valid deductions.
Need Support With Your Small Business Taxes? We Can Help
Accurate reporting and efficient documentation can be time-consuming and challenging for small business owners. Contact YBM today to find out how we can support you with reliable accounting services.