If you earn money, then you have to pay tax. Unfortunately, Australians pay more tax than almost any other nation in the world. With one of the highest taxing systems in existence, it’s small wonder that we all dread the annual tax season. However, there are legitimate ways in which you can minimize the amount you have to pay – and without running the risk of being accused of tax avoidance.
Avoiding and Minimizing
Tax Minimization and Tax Avoidance are two different things and it’s important that you understand the difference between them, or you could wind up looking at hefty penalties or even a criminal conviction. Tax Minimization is the legal process through which you are allowed to reclaim costs you have incurred through running your business. This might mean claiming for goods or services that are necessary to your company’s daily operation, but they can have nothing to do with your personal or domestic life.
By comparison, Tax Avoidance is illegal. Generally, it means using a scheme to avoid paying tax that you are liable for or defer it to a later date. Tax Avoidance schemes are often complex and can involve moving sums of money through a number of accounts, in the hope that they will become untraceable. The likelihood is that, somewhere down the line, someone will spot that the figures don’t make sense and you may be subject to an investigation from the Australian Tax Office.
Business Expenses and Capital Assets
Tax doesn’t have to be avoided when it can be legitimately minimized. The first thing you need to do is work out how much you’ve earned over the previous year. Using bookkeeping software from companies such as Intuit Pay can help you stay on top of this from the start. It will even categorize purchases and transactions for you, giving you an easy-to-read overview of how your business has performed and, more importantly, what it has spent in order to remain operative.
Bookkeeping software such as QuickBooks by Intuit will also allow you to see which expenses you can claim for. Some are obvious; stationery, mobile phone bills and utility bills are things that are used on a daily basis. However, there are other items, known as capital assets, which you can also claim against. These are items that have a longer lifespan, such as motor vehicles, computers and even furniture. Capital assets are claimed for over a period of time and you claim for their depreciation; in other words, you claim for its worth, as its worth decreases.
It can also pay to plan ahead. Using bookkeeping software, you can see where your company has spent money that could otherwise be offset against tax. Plan for the year ahead and check whether there are alternative methods of spending that money; ways that will turn that expenditure in to a claimable purchase. Despite the fact that we are one of the highest tax-paying countries in the world, the ATO is not trying to destroy your business. However, unless you prepare correctly and approach your tax intelligently, that could be the end result.