It’s safe to say it has been a year of significant financial blows for business owners. Many have put their long-term goals on hold in an effort to come out the other side with their business still intact.
No one knows when life will return to normal, so in the meantime, we need strategies to improve cash flow while business incomes continue to take a hit.
Amid so much uncertainty, there’s one thing we know for sure:
Your tax deadline remains the same.
2020 has been a learning curve, and it’s not over yet. With these tax tips, you can hold onto that precious cash flow and learn some valuable tips to future-proof your tax filing.
1. Educate Yourself on Tax
First and foremost, it’s time to get tax-savvy. You don’t need to know everything – leave that to the experts. Just make sure you’re clued up on the tax dos and don’ts that pertain to you.
The easiest way to familiarise yourself with relevant tax information is to browse your national tax website. The information set out on these websites is clear, accurate, and easy-to-understand.
Each country’s rules and regulations are different, so learn the tax policies that apply to your region.
2. Utilize Bookkeeping Software
In this day and age, there’s no excuse for poor bookkeeping. Gone are the days of loose receipts and manila folders. We’re living in a time of affordable bookkeeping software that helps you consolidate your records.
If you run a business, you’ll know that bookkeeping is essential for budgeting, organization, making decisions, and planning ahead. Still, many people are unaware of how important quality records are in reducing your tax bill.
With the right software, you’ll have everything you need in one place come tax time. Consolidating everything from expenses to income increases your chances of paying on time so you avoid nasty penalties or interest.
3. Make a Charitable Donation
Donating to charity is a win-win. The charity gets a boost in funding, and you get to enjoy a deduction in your end-of-year tax bill. Of course, the more you donate, the more you can deduct. You don’t need to donate in one large sum. Small, manageable monthly donations won’t seem like much at the time, but they’ll add up over the year and lead to a significant reduction in your tax bill.
4. Don’t Waste a Business Expense
This is where you’re going to need your bookkeeping software.
Be sure to claim every last business expense. Business expenses can be deducted from your tax bill to reduce the total amount you have to pay. You can make a significant tax deduction by keeping a record of every expense.
You can claim expenses on things like:
- Office lease, furniture, stationery, and electronics
- Employee training
- Car leases
- Advertising and marketing
- Equipment rentals
- Paid interest
- Travel costs
- Legal fees
- Bank fees
- Maintenance and repair costs
- Medical expenses
You’ll need to prove your expenses, so never walk away without a receipt in your hot little hand.
5. Work with a Professional
Tax can take up a lot of time, especially if you’re just starting out. Tax advisors have extensive knowledge of tax rules and regulations specific to your region and come equipped with all the tricks of the trade.
Working with a tax advisor will save you time, squeeze as many deductions from your tax bill as possible, and ensure you’re compliant and punctual year after year.
It pays to form a good relationship with your tax advisor and keep them informed of any life events as they happen such as babies, marriages, a side hustle, or a new boat. This way, your tax advisor can stay one step ahead to ensure your taxes suit your circumstances.
For business owners, finding a tax accountant is the best way to free yourself from the burden of things like provisional tax. If you’re in New Zealand, for example, ask to join a tax pool so you can manage provisional tax payments and keep cash flow from being wasted on overpayments or penalties.
6. Access business tax credits
Business tax credits give businesses the incentive to invest in areas that greatly benefit from the extra funding. This includes social enterprise, research and development, environmental programs, and economic development.
Businesses that invest in these areas understand their value in creating a brighter future. In return, the government deducts a percentage of their investment from the business’ tax bill. Find out what your government considers to be impactful investments and whether your business could qualify for tax relief in your end-of-year obligations.
7. Be on Time!
Surprisingly, many businesses file their tax returns late, leaving them with little time between filing the return and paying the bill. Filing late has a domino effect and often leads to paying late.
You don’t want to be late paying your tax bill!
Penalties start to incur the first day after your return is due. Your tax bill isn’t going anywhere; it’s just growing in size until you clear the full balance.
Get into the habit of filing your tax return early. This way, you have more time to come to terms with the balance of your tax bill and more time to get it paid. Clear outstanding balances before the day they’re due, especially if you’re facing tough financial circumstances.
The penalties on late payments will suck up precious cash flow and leave you with nothing to show for it.
2020 has taught us the true meaning of ‘tough times’. The booming business may not be guaranteed right now, but tax certainly is. Work towards keeping your tax bill down to retain cash flow at a time when you need it most.