With the end of the financial year upon us, many small business owners are scrambling to get their affairs in order for the upcoming tax return.

Tax season can be an incredibly challenging time for small business owners, especially if you are new to the game or worried that you’ll make costly or time consuming mistakes. 

Thankfully, you’ve stumbled onto the perfect article. Today, we have a look at the top 6 questions commonly asked by small business owners in Australia, in a bid to simplify the process for you and other business owners alike. Ready to ace this year’s tax return? Simply read on to find out more!

Q1: What Donations Are Tax Deductible? 

Answer: One of the most common questions asked by small business owners is about what donations are tax deductible.

Small businesses in Australia are also eligible to claim the same benefits from making a tax deductible donation that individuals do.

However, it is important to note that only cash donations to deductible gift recipients (DGRs) can be claimed back during tax time.

A DGR is an entity or fund that can receive tax deductible gifts and has been endorsed by the Australian Taxation Office. 

Donations to DGRs fall under other operating expenses which small businesses can claim as a tax deduction. 

Q2: What Records Do I Need To Keep?

Answer: Good record keeping will help your business run smoother and can help you to identify potential issues before they become problems.

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If you are a sole trader in Australia, you can use the myDeductions tool in the ATO app to track your income and expenses throughout the year. As a business owner, the records you are required to keep include:

1.) Financial Records

Financial records show your cash flow and the financial position of your business.

They include your invoices or receipts for goods and services sold, business activity statement, annual tax returns, bank statements, supplier contracts, business assets register, depreciation schedules, and business loans/shares. 

2.) Employee Records

If your business hires employees, you will need to keep records of staff rosters, contact details, payslips, attendance, work and performance history, bank accounts, tax file numbers (TFN) and superannuation account details. 

3.) Legal Records

Legal records document how you operate your business and include leases, licenses, supplier contracts, client contracts, insurance and registration documents. 

Q3: Is It A Good Idea For A Small Business To Lodge Their Own Taxes? 

Answer: As you may be aware, there are two ways that a small business may choose to pay tax: on its own or through an accountant or licensed tax agent.

Generally speaking, there is no right or wrong way of handling taxes as a small business.

However, each method comes with its own set pros and cons and business owners should consider these factors when deciding on the method best suitable for a business’ individual circumstances. 

Pros Of A Small Business Lodging Their Own Taxes

  • Lodging your own taxes a small business is made easy with the ATO’s myTax online lodgement portal. 
  • Small business owners may save money by lodging their own taxes. 
  • Small businesses owners can take their time when checking deductions and lodging taxes on their own. 

Pros Of Hiring An Accountant Or Licensed Tax Agent 

  • Eliminate potentially costly mistakes.  
  • A licensed tax agent will have more comprehensive knowledge of how the Australian tax system works for small businesses.
  • A professional may be able to help you manage any deductions and offsets that may apply to your business.

Cons Of A Small Business Lodging Their Own Taxes 

  • Lodging your own tax as a small business can be time consuming and in some cases, overwhelming.
  • Business owners may make errors that can lead to costly repercussions from the ATO. 

Cons Of Hiring An Accountant Or Licensed Tax Agent 

  • Hiring a licensed tax agent may be costly which can be a downside for startups or small businesses with limited resources. 

Q4: What Qualifies As Income? 

Answer: Another common question we hear from business owners relates to what qualifies as income.

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When lodging a tax return for your small business, it is important to report all the income you make through your business.

On top of payments received in person and online, income is also made up of:

  • Sales of goods or services made with cash, credit card, vouchers, gift cards and coupons;
  • Rental income from any property owned by your business, if applicable; 
  • Bank account interest; and 
  • Assessable government payments. 

All of these sources need to be reported as business income, after which you may be eligible to claim a deduction for most business expenses related to earning said income.

Q5: What Are The Small Business Deductions That Are Often Overlooked? 

This is a great question that may lead to your small business saving thousands of dollars.

A few of the deductions that are often overlooked include mileage deductions (work related car trips), parking, postage, bad debt expenses, web hosting, subscriptions, purchases made with cash, and educational expenses such as training seminars, online courses and books. 

For those who operate out of a home office, deductions may also include housing costs such as utilities, property taxes, rent, and much more.

Do note that you will need to measure the square footage of your home to determine the percentage of how much you can deduct. 

Q6: Are There Any Changes To Small Business Tax in 2023 That I Should Be Aware About?

Answer: The temporary full expensing incentives to help Australian businesses withstand the impacts of COVID-19 that was introduced in 2020 has been extended for eligible businesses until 30 June 2023.

Other key changes for companies include film tax offsets, change in tax rate for base rate entities, the loss carry back tax offset tool and more.

Tax season doesn’t have to be challenging or overwhelming as a small business owner.

By asking yourself these 6 questions, you will be well on your way to setting yourself up for a great financial year ahead. 

What are some of your burning tax time questions as a small business owner? Be sure to share them in the comments section below!