Top tax tips to (legitimately) reduce your business tax bill

Business Tax Tips1. Deferring income and bring forward expenses

It is always a good idea to try and defer your taxable income to next financial year. For those operating on a cash basis then simply delay the “receipt” of the income. If you operate on a non-cash basis then you may want to defer your invoicing til next year.

2. Scrap obsolete stock and plant

Got some old plant or stock that your business simply can’t sell? Then physically write it off before 30 June and get a tax deduction for it this year. You can value trading stock at the lower of actual cost, replacement cost, or market selling value.  This valuation can be applied to each item of trading stock.

3. Claiming deductions for expenses not paid at year end

Just because you haven’t paid for something doesn’t mean that you can’t claim it. Businesses are entitled to an immediate deduction for certain expenses that have been “incurred” but not been paid by 30 June 2010 including:

  • Salary and wages – claim the number of days that employees have worked up to 30 June 2010, but have not been paid until the new financial year;
  • Directors fees – claim a tax deduction for directors fees that are “definitely committed” to at 30 June and has passed an appropriate resolution to approve the payment;
  • Staff bonuses – claim a tax deduction for staff bonuses and commissions that are owed and unpaid at 30 June where the business is “definitely committed” to the expense;
  • Repairs and maintenance – claim repairs undertaken and billed by 30 June but not paid until next year.

4. Income splitting

It amazes me how many smart business people are really dumb when it comes to reducing tax. Too often I see them paying 46.5 percent tax on income, which could be in put under their lower taxed spouse (0 percent or 16.5 percent) or company (30 percent).

5. Write off bad debts

Like obsolete stock, for a business to get a tax deduction on its bad debts it must physically write off the debt prior to 30 June. Note that the debt must have been originally shown as income in order for the write-off to be allowed. Put your decision in writing such as a board minute. You also need to show that you have made a genuine attempt to recover the debt to prove that it is bad.

[Next: Take advantage of the Small Business Entity concessions]