6 common tax mistakes small businesses make
Tax time has come and gone for another year, but now is not the time to get back into old habits. With less than 12 months until the next end of the financial year, it is vital that you put in good bookkeeping habits now to make the next tax time smoother. This is important because many unaware business owners make common mistakes each tax time that could be accentuating their stress and even losing them money.
To help you out we have put together the 6 most common tax mistakes businesses make and how they can avoid them.
1. Not using a tax agent
Tax agents are here to help take a load of work off you. Many business owners feel that they aren’t earning enough to warrant hiring a tax agent or bookkeeper. However, many don’t realise the amount of workload that can then be taken off them, enabling them to focus entirely on the parts of the business they are passionate about. Juggling multiple roles is not an easy task, let alone doing the bookkeeping when your talents lay in sales or creative endeavours.
Having a bookkeeper or tax agent allows you to take those tasks, which you may be struggling with, off your plate, so you can focus on what you do best. Not only will this benefit your own workload, but it will be huge when it comes to tax time. Many mistakes are made by business owners who don’t have the time to do the books or are struggling with them. Tax agents are experts at ensuring your bookkeeping meets all its obligations, ensuring you never fall afoul of the ATO.
2. Not keeping up with changes in tax laws
Tax laws are changing regularly in Australia, so it can be hard to keep up. That is, of course, unless you are a professional bookkeeper. It is important to keep up with these changes if you are doing your own books. Many of these changes could give you more money, or they could leave you with less. Some could even have major consequences on your business if ignored.
There are many examples of this. Such as the superannuation mandatory contribution increase, which is going up by half a percent each year until it reaches 12%. Other things include employee awards being updated twice yearly. Keep an eye on things like these to avoid issues with the ATO.
3. Poor bookkeeping
As you are required to keep financial records of your business by law, bookkeeping is a must-have. This means that you need to keep and manage records of every expense, income, and employee payroll. This all then needs to be kept for a period of 5 years as you could be audited by the ATO. Unfortunately, bookkeeping can be challenging for many business owners, and so, it often is done poorly. Bookkeeping done poorly often causes much of the stress experienced around tax time.
There are two ways to solve this. Either, you need to devote more time to bookkeeping, taking time out of your day to complete it, or you could hire a professional bookkeeper to do it on your behalf.
4. Not recording sales through your register
If your business is a brick and mortar retail or hospitality business it is likely that you will need to deal with customers paying with cash from time to time. A common mistake here is not putting that cash sale through the register. As you need to have records of all transactions it is vital that these cash sales are recorded through the register. Otherwise, you will need to record them by hand or risk legal and financial consequences.
5. Not putting the status of your workers correctly
Are you putting your employees as subcontractors to avoid paying superannuation, sick leave, holiday pay, and payroll tax? Be very careful as there are strict rules as to whether you can make an employee a subcontractor or not. You can quickly find yourself in hot water if you make a mistake here.
If someone shows up to work at set days and hours, is working under supervision, has an ongoing expectation of work, and does not carry financial risks with the work they do, then they can’t be considered a subcontractor. The risks of putting the incorrect status of your employees are high. Not only could it breach workplace relations, but you could be breaching taxation and worker’s compensation laws.
6. Missing tax obligations deadlines
Managing your tax obligations is a vital part of keeping on budget. Firstly you should know all the important tax dates, if you do not, simply give us a call and we can help out. Next, you should ensure you are on top of your tax and employee obligations. These should always be paid at the highest priority. The ATO can impose significant penalties if your payments and contributions are missing.
If you find yourself struggling to keep on top of your bookkeeping or tax obligations it is best to reach out to a bookkeeper. While you will have to pay for their services, the work they do, plus the time they will free, will be more than pay for the cost. If you want to get started with a bookkeeper, give Link Books a call.