Marc Peskett: Top Tax Tips for Start-up Businesses
Getting into good year-round tax habits
By Marc Peskett
With many businesses’ attention starting to turn to the end of the financial year on June 30, entrepreneurs will invariably focus on all matters financial, particularly how they handle their tax situation.
However, tax shouldn’t be a once-a-year issue. Start-ups need to get into good, consistent tax habits from day one, or risk restricting growth.
Starting up a business involves navigating through many issues and making decisions, designed to get the business at its best starting point to springboard into a successful first few years.
With limited cash, the focus of start-ups should be on minimising costs and pursuing the important priorities.
As tax can be a significant cost and drain on cashflow, it’s important that you know your tax obligations and factor these into your planning and decision-making at the outset.
With this in mind, here are my top six tax tips for start-ups:
1. Don’t let tax solely drive decision-making
Balancing the tax management approach against the commercial needs of the business should be a secondary consideration. Don’t spend $1 just to save 30c in tax.
A number of tax initiatives have been implemented for small businesses in the last few years, with the recent budget announcement of a $5,000 write-off for cars being one example of this.
These opportunities make it tempting for investment dollars to be directed where costs may be recouped via deductions or write-offs. When considering business investments, ask yourself a couple of key questions that will help assess whether it’s a good investment:
2. Choose the right structure for your business
You need to have a clear sense of how the business will operate and then obtain some advice from your accountant about:
3. Take advantage of concessions and incentives
Each provide cash back to the business when it undertakes specific activities or at a certain milestone in the life of the business, such as at sale.
Be aware of the concessions and incentives available to you and put steps in place to access them. They can provide the benefit of an additional injection of cash or help prevent cash leakage.
4. Know your reporting obligations
Knowing them at the outset enables you to build the reporting requirements into your systems, so that it’s quicker and easier to extract and deliver accurate information required to meet statutory deadlines.
Some reporting requirements are given greater weight and enforcement. Your accountant will be able to provide more comprehensive advice on when and how you need to meet your obligations.
5. Factor tax and other payments into cashflow budgets
There are also a range of taxes and payments you may be liable for as a result of being an employer. The best way to ensure you do meet all these payments is to know when they are due and build them into your budgets.
Cash-strapped businesses will find it difficult to borrow or obtain external sources of cash to help meet these obligations.
The other tempting option is to delay remitting taxes as a means to managing cashflow, however the penalties to directors for doing so are several and can be severe.
6. Understand your tax returns
Some of the penalties have already been outlined above, making it important that you understand the financial accounts and returns submitted by and for your business.
Starting up a business is a taxing experience, but with some comprehensive advice and a solid understanding at the outset, it shouldn’t be more draining on your cash than it need be.
For a more comprehensive discussion about tax issues that every start-up should understand, click here to register to attend Marc’s free StartupSmart-hosted webinar ‘10 Tax Commandments for Start-Ups’ being held tomorrow, Friday, May 20, at 12.30pm.
Marc Peskett is a partner of MPR Group a Melbourne based firm that provides tax, as well as business advisory and planning services, outsourced accounting, grants support and financial services to fast growing small to medium enterprises. You can follow Marc on Twitter @mpeskett
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