The end of the fiscal year, March 31, represents the perfect time to minimise tax liabilities and get ready for the coming year. You can take positive steps to minimize your tax bill by carefully planning when to make purchases and send out invoices. Annual, small-step increases are typically more agreeable than abrupt, huge increases.
In this article, we look at how you can utilize technology and take positive steps to set yourself up for a less stressful tax year. We’ll discuss some of the finer points of tax season in the run-up to the new fiscal year, such as figuring out what you may write off for home office expenditures and calculating and claiming transportation expenses.
Here are six things you might want to prioritise adding to your end-of-financial-year (EOFY) to-do list.
Table of Contents
1. Plan
Before the last residual income tax deadline on April 7, now is the time to clearly grasp where your company’s finances are and create a backup plan, if necessary.
It might be a double blow since, in addition to paying any unpaid taxes from the prior tax year, you must also pay your final instalment of provisional tax for the current tax year soon after.
If you are short on funds, you could consider raising tax pooling with your accountant. Tax pooling is simply an IRD-approved mechanism where companies can obtain surplus funds from other companies that have been deposited into the tax pool, which is subsequently sold at a modest profit.
The business is seen as an on-time payer and not a delinquent taxpayer by using the tax pool to pay taxes and then returning the tax pool.
Are you running a small business?
When you’re juggling the demands of running a small business, it might be easy to put insurance lower on the priority list, especially for young business owners. It may be the last thing on your mind while you focus on gaining clients, establishing a good reputation, and managing your financial flow. However, if you don’t have small business insurance, all of your efforts can be for nothing if a client or other member of the public decides to sue you.
Public Liability Insurance can protect you against this occurrence, and our selection of add-on extras can assist you in reducing other key risks, such as the possibility that a named member of your team would suffer a workplace injury.
2. Compare your withdrawals to the money you contributed.
During this time of year, it’s a good idea to calculate your withdrawals vs your contributions if you have a limited liability corporation.
Many business owners take home more money than the business owes them; the difference is their shareholder compensation. However, occasionally people withdraw higher sums from the company without realising it restricts their capacity to lower overall tax.
You can achieve a favourable tax outcome if you can leave more income in the firm and pay a little bit of shareholder remuneration. If you’ve taken too much out, you may essentially have a loan from the company, and you’ll need to pay interest.
3. Strategically invest in assets
Shopping at the end of the year is alluring since you can save money and get deals. Nevertheless, it’s wise to live by the old adage: If the business doesn’t need it, it’s not a bargain.
Additionally, time is crucial if you’re looking to purchase new assets for your company, like a vehicle.
You are only permitted to deduct a vehicle’s depreciation if you’ve owned it for the entire year. Therefore, you should hold off selling your current car until April. If you sell now, you could lose out on a year’s worth of depreciation.
However, this does not necessarily imply that you should hold off on making a purchase until the new fiscal year. If your business’s GST registration specifies that you prepare your GST returns on an invoice basis rather than a payments basis, businesses that issued sales invoices for new vehicles before 1 April may be able to claim the GST back in the GST return ending 31 March, even if they don’t take possession of the vehicle or pay for it until later.
4. Prepay or postpone?
It is not advisable to prepay too far in advance to lower taxable income. It is still important to consider expenses you may pay now and deduct from this fiscal year, such as domain name renewals.
Are there any sales bills you may postpone to the following tax year, if your cash flow permits, to reduce the amount of tax due this tax season? Your forecasts will determine whether it is beneficial.
5. Examine your price point
EOFY is a good time of year to examine any changes in the cost of sales, including materials, shipping, labour, and more, and their influence on profit margins, as well as looking at inflation, to ensure that pricing evaluations are routine.
Inflation has been between 5% and 6% over the past year and is predicted to stay that way. You can’t always raise prices due to inflation, but it’s better to examine them every year than to wait a few years and have to raise them dramatically all at once.
6. The FY23 budget and forecast
When it comes to forecasting, paint a somewhat gloomy image by underestimating income, overestimating costs, and reviewing the estimate every three months. This enables you to keep track of your income and expenses and, if done correctly, lowers the likelihood that you’ll receive a tax bill you can’t afford.
Think about whether you’re handling your day-to-day tax administration in a way that best suits your firm as you prepare your budget and forecast for the upcoming 12 months.
If in any doubt, consult experts for guidance on the systems and procedures that would be best for your needs.
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