This recap of Emma Piccione’s masterclass is thanks to our friends at Xero. Visit the Business Chicks Small Business Hub for more informative and inspiring content on everything from tax and cash flow to mental health and wellbeing (and all that lies in between).
Tax return season is well and truly here, so for a recent Masterclass Online we asked Charted Accountant and founding director of The Accounting Division, Emma Piccione, to give us a run down on everything small business owners should be doing to prepare. With an understanding of how the tax system works, you can be better placed to make smart decisions for yourself and your business. So read on before meeting with your tax agent, we promise your future-self will thank you for it. And a word of advice that this information is general in nature, so it’s best to speak to your accountant to see how it applies to your unique situation.
We don’t just make decisions for tax purposes. We need to be really careful in the current climate about where we put our cash, and really smart about our tax strategy and what we’re claiming deductions on. Emma’s advice to small business owners was that with so much uncertainty, this is not an opportunity to be throwing away money for the sake of tax.
New schemes and deadlines to be aware of
- JobKeeper declarations are due by the 14th July 2020.
- You must use your accounting program to send your staff payment summaries to the tax office via Single Touch Payroll (STP). Payroll softwares (including Xero) have STP functionality to make your life easier.
- While you may not have seen a Cash Flow Boost hit your account, don’t give up as you may still be eligible. Contact the tax office or ask your accountant to do so on your account. Emma has had luck with recent applications on behalf of her clients.
- Businesses can now claim an immediate tax write-off on a new or used assets up to the value of $150,000 (previously $30,000) if the asset is installed and ready for use by 30 June 2020. These Instant Asset Write Offs will also be available next financial year, so if you have made a purchase that is not ready for use by 30 June 2020, don’t despair, because if it’s installed and ready for use by December 2020 you can claim it back in the 2020/2021 financial year.
- Emma recommended contacting your state and local governments (or check out their websites) to see if they are offering grants, as they are a wonderful opportunity for small businesses this financial year. You don’t need to live or have an office in the area you are claiming a grant under, as long as you are doing some sort of business there.
Preparing for your tax return
You cannot make good decisions in business without good information. Emma held the strong view that with today’s technology and software like Xero, there are no reasons why you cannot have access to this data. You should know at all times of year where you are sitting at for GST and income tax. You should be able to pull a report and know what your obligations are so that there are no surprise bills at the end of the financial year.
As a small business you can decide whether you inform the tax office at a cash received or cash accruals (invoices) basis. Most small business owners Emma works with report on cash basis, reporting when the money has hit their account.
But as Emma said, it’s not just about tax. A business owner’s number one priority should be achieving goals outside of business (life goals), and every decision you’re making should lead you to this goal. Your business is just one of those vehicle steering you towards the goal. If you have intentions to borrow money for personal reasons (say a mortgage or car loan), business reasons, or if you’re planning on selling your business, you need to factor this in to your tax decisions during this financial year. Your financial year statement as of 30 June is the source of truth for the next 12 months. If you’re planning on borrowing money, Emma recommended having a conversation with your broker now. If you try to minimise the tax you pay now, it may reduce your borrowing potential. If you plan to sell, your potential buyers will also want to see your financial statements, so decisions you make now may influence the perceived value from a potential buyers perspective.
Claiming tax deductions
To make life easier at tax time, Emma suggested having two cards in your wallet – one for personal spending, and one for business expenses. The criteria for using your business card? That magic tax office word, nexus, which means connection. If you can connect an expense to your business, you should be using your business card. Take a photo of every tax invoice and store it securely in your phone to avoid drowning in faded paper come end of financial year. Emma also advised business owners to export their personal bank statements and review the data in a spreadsheet. By grouping payee information, you can easily spot any potential business expenses that can be claimed.
Make note of any donations you have made over the past 12 months and keep the tax invoices handy.
Keep a log of the kilometres travelled in your personal car for work to be eligible to claim up to 5000 kilometres a year in your personal tax return.
Take note of the hours you spent working from home from 1st July 2019 until 29th February 2020. Also keep track of the hours you spent working from home from 1st March until 30th June 2020. Chances are your hours increased substantially in the second period, so you may be eligible to claim up to 80c in the dollar for household electricity and gas bills incurred in your FY 19-20 tax return.
Emma’s final piece of advice? Rely on good accounting software to make your life easier. “I love Xero. We’ve gone from seeing customers who know absolutely nothing about their numbers, to having real time access and making good business decisions.”
Emma Piccione is a Chartered Accountant, with a particular interest in growing businesses. The founding director of The Accounting Division, Emma has over 14 years of tax and accounting experience, supporting small and medium sized businesses manage their tax and compliance obligations, whilst ensuring they’re also kicking their business goals.
Born in the cloud, Xero is a beautiful, easy-to-use platform for small businesses and their advisors. It connects you with your business numbers anytime, anywhere and on any device, and offers features such as payroll, invoicing, payments and bank reconciliation. Xero also provides its subscribers with connections to a thriving ecosystem of more than 800 third-party apps (including Shopify) and more than 200 banks and financial service providers.