At the end of every financial year, business owners get incredibly busy as they have to lodge their tax return. Working closely with tax agents and accountants, they have to get everything in order before the end of the filing period. But since filing tax returns is no simple task, sometimes mistakes are made.
It can be as simple as not having all the required records. This is why businesses need to start getting their affairs in order 2-3 months before the end of the financial year.
In this post, we will list some common issues associated with filing small-business tax returns and some tips to avoid them.
What are the most common errors made when completing tax returns?
The Australian Taxation Office (ATO) identified the most common mistakes that small businesses make when filing their tax returns. These include failing to declare income including cash and online sales, interest, capital, dividends, gains, and one-off transactions for selling equipment, and other capital items. Failing to account for the private use of business assets or funds (including stock taken for private use and shareholder loans) is another common mistake.
The ATO also observed that small businesses fail to have adequate record-keeping systems. When completing tax returns, they have to keep all required records. Otherwise, they might have to redo the whole thing.
How can these errors be avoided?
The Australian Taxation Office (ATO) expressed its support for small businesses during the filing season. As per the ATO, there is a range of services and tools available to help businesses address the errors mentioned above. From lodging their returns and ensuring recordkeeping and claiming of expenses, there are golden rules that businesses can follow:
For tax agents and accountants, the ATO advised the following:
Businesses claiming loss may need the assistance of a tax agent in Sydney to understand how to correctly claim current and prior losses. For the current tax year (2020—21) and the next one (2021—22), businesses that anticipate a tax refund should take note that the quicker they lodge the return, the quicker they will get the refund. If you’re a small business owner, you will have to lodge your return by 1 November 2021.
How to pre-pay income tax?
Businesses have the option to pre-pay their income tax. With pay as you go (PAYG) instalments, businesses can work out how they can pay and how much they pay. The first option is using the instalment amount and the instalment rate for the second one.
Let’s take a closer look at these PAYG instalment options below:
For this option, the Australian Taxation Office calculates the amount of each instalment from the information reported on the business’ latest tax return. This is usually the option that works for individuals (including sole traders), and a trust or super fund that is an annual payer, with business/investment income of $2 million or less. Companies can use this option if they are an annual payer and have a small business entity with an aggregated turnover of less than $10 million a year. Business entities with an aggregated turnover of more than $10 million but less than $50 million a year can also use this option from 1 July 2021.
Here, the business works out the instalment amount using the instalment rate that the Australian Taxation Office provides and the business’ instalment income. Some taxpayers are required to use it, and a tax adviser will know if a business must use this option.
This instalment rate option has some great advantages. For one, payments are based on the business’ income as they earn it (it could be from the month just gone or in the quarter). This helps with cash flow management because a business can apply the instalment rate to a lower income (if their income decreases in a quarter) and pay a lower amount.
Avoid small business tax time errors
Small businesses can get professional help from a tax agent in Sydney when filing their income tax return. If you own a small business and have been searching the internet for a “tax agent near me,” turn to Practical Accountants. To get started, kindly contact us on 02 9517 4726.
Disclaimer: All the information on this website - http://practicalaccountants.com.au/ - is published in good faith and for general information purpose only. Practical Accountants does not make any warranties about the completeness, reliability and accuracy of this information. Any action you take upon the information you find on this website (Practical Accountants), is strictly at your own risk. Practical Accountants will not be liable for any losses and/or damages in connection with the use of our website. From our website, you can visit other websites by following hyperlinks to such external sites. While we strive to provide only quality links to useful and ethical websites, we have no control over the content and nature of these sites. These links to other websites do not imply a recommendation for all the content found on these sites. Site owners and content may change without notice and may occur before we have the opportunity to remove a link which may have gone 'bad'. Please be also aware that when you leave our website, other sites may have different privacy policies and terms which are beyond our control. Please be sure to check the Privacy Policies of these sites as well as their "Terms of Service" before engaging in any business or uploading any information.
Consent: By using our website, you hereby consent to our disclaimer and agree to its terms.
Update: Should we update, amend or make any changes to this document, those changes will be prominently posted here.