How to Avoid Tax Debt
Benjamin Franklin said there were only two things certain in life: death and taxes. And he wasn’t wrong! Paying taxes is an absolute certainty when you’re running a business of any size but getting a tax refund is not.
Tax debt, when you haven't paid enough tax to the ATO throughout the year, can cause major issues and may include negotiating a repayment plan with the ATO, refinancing to pay out the tax debt or restructuring your business to liquidate the debt in full.
So, let’s have a look at what you can do you avoid tax debt.
Organisation is vital regardless of your business model and having a process to manage your funds is a good idea and will help you avoid unnecessary stress and bills, so start as you mean to go on!
Using a recognised accounting system like XERO is always a great idea. Good accounting software will guide you through standard bookkeeping tasks and they have a heap of resources to help you navigate the system.
If you intend on growing your team or have established staff, have it checked over by an accounting professional to save you time further down the road. If you have employees, then you also need to set aside money for their PAYG and superannuation, your STP set up will assist with this. Not sure what STP is (Single Touch Payroll) then check out our blog on it here - Click here
Good records will also be a benefit to you so ensure you put time aside every week/month to log the basics or use a tracking system so you can easily look back and see the clients work or sales made, incoming payments and outgoing expenses and ensure you are matching up all receipts and noting bank transfers made.
If your business collects GST from customers, it’s important to remember that 10% of your invoice is not your money. It’s the goods and services tax that you have collected and should be listed in your BAS (business activity statement) so don’t be tempted to spend it or you will have to find the money or end up with a tax debt.
It’s also important to chase up late payers, getting into a habit of doing this will save you more time and hassle later. Most people don’t like making these calls but I promise you will get a better response from a polite phone call then sending 10 electronic reminders and it doesn’t matter if they can’t make the payment on the date, you can set a date or split the payment in two to make it easier to get your full payment in a promptly.
So, what’s the best way to avoid tax debt? Put money aside for your tax bill, you’ll need discipline but once you get into the habit it’ll be easy and will save you getting caught out at tax time. You can set up a separate account or just keep a running tally. You must take this seriously as the government is unlikely to be lenient if you fail to pay your tax bill.
You can also use the ATO’s handy ‘Simple tax calculator’ to estimate how much tax you are likely to owe so you can plan how much money to set aside or pay through PAYG instalments or prepayments.
If you'd like to speak to us about tax planning, getting help with managing your tax, BAS and/or payroll just book in for a free 15 minute call HERE and we can discuss your needs.
You can also ask us about our solution that has no big bills, just a manageable monthly fee that includes quarterly BAS and business analysis, tax planning and your end of year financials AND you can claim this expenses back at tax time✔️