Maximising tax deductions and credits is crucial for small business owners who want to reduce their tax bills and improve their profitability. Key strategies include:

  •  Claiming common deductions such as rent, utilities, office supplies, wages and superannuation contributions, professional services and marketing expenses.
  •  Saving on vehicle and travel costs related to business operations.
  •  Depreciating business assets to offset taxable income.
  • Leveraging research and development (R&D) tax incentives for eligible activities.

Staying organised, keeping accurate records, and seeking professional advice can help ensure these opportunities are fully utilised. There are other strategies, however, that help to reduce your tax bill – here are six you need to know.

1. Choosing the Right Business Structure

The structure of your business – whether it’s a sole trader, partnership, trust, or company – directly impacts your tax obligations. Each structure has different rules and responsibilities for income tax, PAYG withholding, superannuation, GST and fringe benefits tax (FBT). Selecting the right structure ensures your tax liabilities are manageable while optimising your financial benefits.

  • Income Tax: Based on your business’s earnings.
  • PAYG: For employee wages.
  • Superannuation: Compulsory contributions for eligible employees.
  • GST: Applied to goods and services if your turnover exceeds the GST threshold.
  • FBT: For non-salary employee benefits.

Staying on top of these obligations is essential for avoiding penalties and ensuring smooth operations.

2. Take Advantage of the Instant Asset Write-Off

The instant asset write-off is a valuable tool for small businesses, allowing the immediate deduction of eligible asset costs. For example, if you purchase equipment or a vehicle for your business, you can claim the full cost in the year of purchase instead of spreading it over several years. This strategy lowers your taxable income and improves cash flow, enabling you to reinvest in your business.

3. Leveraging Small Business Tax Concessions

Small business tax concessions are designed to ease the financial burden, particularly for start-ups. These include simplified depreciation rules, immediate deductions for certain start-up costs, and streamlined trading stock regulations. For example, if your start-up incurs expenses for professional services or marketing, these can be immediately deducted, reducing taxable income during the critical early stages.

4. Utilising Lower Company Tax Rates

Small businesses with an annual turnover of less than $50 million qualify for reduced company tax rates. Currently set at 25% for the 2024-2025 income year, these rates allow small businesses to retain a greater portion of their profits. For instance, a business with $100,000 in taxable profit would pay just $25,000 in tax, leaving more funds to invest in growth.

5. Income Splitting for Tax Savings

Income splitting is an effective strategy for reducing your overall taxable income. This involves distributing income among family members or entities to benefit from lower tax brackets. For instance, if a family member works for your business, paying them a reasonable salary can reduce your taxable income while keeping funds within the family.

6. Set Aside Funds for Tax Obligations

Use previous years’ earnings as a guideline to estimate your tax obligations, or consult with your Kadota accountant for a more accurate figure. Set aside these funds in a separate tax account to ensure you’re prepared when tax deadlines approach.

Maximising Deductions and Savings

Tax planning is a critical aspect of running a successful small business. Leveraging available deductions, concessions, and strategic planning helps minimise your tax liability and keep more of your hard-earned profits. Staying organised and consulting with a Kadota tax professional ensures you remain compliant while maximising your savings.