Big tax mistakes in small business
by Peter Switzer
In business, as in many aspects of life, timing can be everything. And experience suggests that where small businesses often make big mistakes is in the crucial bottom line area of tax.
And there are three causes for this bottom line blue. First, most of us are time poor. Second, most of us are procrastinators and third, let’s face it, many Aussies are cheapskates.
Think about it: this is, in an economic sense, a 30 per cent cost for most businesses and business owners. The company tax rate is 30 per cent and the average rate of tax for many business owners operating as sole traders or partners would be in the same taxing neighbourhood.
Recently I asked a group attending a conference if they paid tax. Most hands went up. I suggested everyone put their hand up even if they were lying.
Next I asked them to keep their hand up if they liked paying their current amount of tax and most hands went down. I then asked if anyone had read the Tax Act and even the accountants didn’t put their hands up. (Most read easier-to-read summaries.)
Finally, I asked who had gone to a good accountant or tax expert to have their income tax circumstances analysed carefully to see if their tax bill could be reduced. As always, when I ask this question, only 10 per cent had actively tried to reduce their tax bill.
I reckon 10 per cent of Aussies are smart operators while the other 90 per cent are a danger to themselves and a burden to others.
The June 2006 edition of Psychologies magazine informed readers that 95 per cent of humanity are procrastinators while 15-20 per cent are chronic “put it off until tomorrow” merchants.
We always talk about planning in business but a subset of great importance is tax planning. Ideally an accountant who also is a financial planner could assess what tax your business and you, as an Australian taxpayer, are paying and work out a more sensible way of arranging your tax matters.
For example, many business owners have found a self-managed super fund very useful for, say, buying buildings that they can run their businesses out of.
Others have been advised to run their businesses out of discretionary trusts to ensure that they could protect their assets in case they are sued. Many professionals — accountants, lawyers and doctors — have used trusts and their spouses to safeguard themselves from prosecution. It has also helped cement greater devotion to a partner.
One of the greatest mistakes many business taxpayers make is to buy an asset — a business, a building or piece of equipment — and then ask an accountant whether they should put it into a trust.
Thee questions come at the wrong time and can be costly to rearrange.
The failure to ask the right question of the right relevant professional can result in a long period of overpayment of taxes, lost investment opportunities and even mistakes that could wind you up in trouble with the law.
There are many business owners out there who have accessed their self-managed super funds for cash when their businesses encountered cash flow problems. This is not only a crime; it can render the fund non-compliant, which takes away the tax concessions that go with a super fund.
The number one job most business people should have on the top of their “to do list” is to seek out a trustworthy, competent tax adviser. And with a couple of months to go before the end of the financial year, this could be an ideal time to do it.
I’ve said it before and I will say it again: If there’s anything worth doing, it’s worth doing for money. Anyone avoiding accounting bills to save money is courting false economy.
If you’re looking to work on your business rather than being stuck in it, book in for a complimentary business assessment today with Switzer Business Coaching.
Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.
Published on: Monday, April 30, 2012blog comments powered by Disqus