EOFY Tax Mistakes to Avoid

The 4 things to avoid come tax time

Being properly prepared during the year will save much of the headache of preparing your tax return at the end of the financial year. We have identified some common mistakes that are often made when approaching the end of a financial year

Poor Record Keeping

Trying to recall what happened 12 or 18 months ago is never easy. Being disciplined with your record-keeping takes the stress and anxiety out of year-end tax preparation.  

If you are running a small business make sure you have separate bank accounts which are used only for business purposes. You can integrate software to help record electronic copies of all your invoices meaning so you don’t have to keep all the old paper copies on hand. 

There are also steps you can take to ensure no changes are made to your software file after key dates. Transactions can easily be coded to the wrong year which can lead to confusion and errors in your reporting. 

If you’ve invested in accounting software, it can pay to learn how to use it properly to ensure you are using its inbuilt efficiencies to your advantage. 

Not reviewing debts & stock  

It’s a good idea for small business owners to check their accounts receivable and write off any amounts that are unlikely to be paid. 

If you have stock, it is also a good idea to do a stock take so you can accurately record the correct figure for tax purposes and to identify any obsolete stock that should be written off. 

Both of these actions can maximise your tax deductions for the year. 

Not properly planning your tax liabilities

Small business, particularly new business can fall into a cash flow trap when unpaid tax obligations come to the fore later in the year. 

If you are a first-year company for example, you may not have prepaid any tax throughout the year and this will become payable all in one hit. This is likely to be 26% of your profits and could be a significant amount. Once you have been in the system for a while you will pay your income tax in instalments throughout the year which should reduce any of these shocks. 

GST, PAYG Withholding, and superannuation are all liabilities that become payable around the same time, if you don’t plan for these properly you can easily run into a cash flow problem. 

It can be a good idea to setup a separate bank account to put money aside for these costs throughout the year. 

Failing to invest in expert assistance

It can be tempting to minimise expenses, especially when still recovering from or still feeling the impact of COVID. 

Failing to consult with experts can lead to small business owners making errors in important decisions, such as the acquisition of significant assets or misunderstanding tax consequences. It can also lead to missed opportunities if there are particular grants and subsidies which you may be entitled to. 

Having a professional assist with planning and oversee or lodge your tax on your behalf can provide you with peace of mind and the ability to turn to someone for advice who knows your situation well.