Making a financial difference

4 Simple Strategies That SAVED a client $34,964 in Tax

Plus a real live case study of HOW this client is helping us achieve our QUEST of saving a $1,000,000 in TAX

“It’s time to grab the opportunity with both hand while we can”

For all of the business owners who don’t know or who have not been advised of the increase in the turnover threshold for small business from $2,000,000 to $10,000,000, this is for you.

You see, this change gives a lot more business owners the opportunity to save a lot of money.

As Part of this discussion I’m going to use a live case study and walk you through the tax savings and how this one client helped dramatically on our quest to save $1 Million dollars in tax savings.

But you know the scary thing about this change is that it was effective in the 2017 financial year and a lot of business owners missed the boat then and the same thing will happen again.

Why is this so?

I’ don’t want to shoot my fellow accountants in the foot but when it comes to looking after the best interest of clients then I think it is our duty to get the message out there. The reason why I think that most accountants will miss the boat again and again and cost their clients thousands of dollars tax is that they are way too busy, punching numbers in and pumping out tax returns with no time to think.

Knowing there is a $10,000,000 threshold

As a business owner knowing that you come under the small business tax concession is the first step then understanding which of the concessional tax are available to you is the next step and this is normally a conversation you might want to have with a proactive tax specialist.

Here Are Just 4 of the Tax Concessions

1. Lower company tax rate of 27.5%

This is pretty amazing if you’re business is structured as a company and turning over between greater than $2 million as your tax rate drops from 30% to 27.5%!

So, in our case study that’s a tax saving of 2.5%. And based on their profit of $612,692 this concessional tax strategy just saved them $15,317.

That is $15,317 that the client in the case study gets to keep.

2. $20,000 Instant Asset Write Off

Now, as a small business turning over less than $10 Million dollars per year you also become eligible for the $20,000 instant asset write off.

Prior to 2017 the instant asset write off was only available to businesses with an annual turnover under $2 million. Now if your turnover is less than $10 Million dollars and if you buy an asset, like a laptop, furniture, equipment or even a car for $20,000 or less (excluding GST), then you can claim 100% of the depreciation in the year that you purchased it.

This is great for those businesses that are growing

So, what does it mean for our case study client? Even though they only spent $2,579 on some assets during the year it still saved them $709 in tax. However so far we have accumulated $16,026 toward our quest and there are better things to come.

3. Small Business Accelerated Depreciation

Now, also on the depreciation front, you now get access to the small business general pool.

Normally ‘big’ businesses have to write an asset off over what’s called their effective life.

A car gets written off at over eight years. Other equipment might be 10 or 20 years.

With assets over $20,000 you would have written off 15% in the first year and then 30% of that value every year after that.

If your business has assets from the previous financial year, being written off under the OLD rules, you can now move these assets into the ‘General Pool’, and write them off at 30% per year.

In our live case study our client has $90,013 equipment previously being written off at the lower tax rate – that’s a tax saving of $7,426 as the company switched to the new rules!

Being able to boost your depreciation deduction can be a pretty powerful strategy to reduce the amount of tax you pay.

Let recap the tax savings so far for our live case study… $23,452

4. Prepaid Expenses

Under the small businesses concessions you are eligible to receive a tax deduction for prepaid expenses.

In fact you can actually prepay up to 13 months of expenses in advance as a small business and claim it all in that financial year that you pay it.

For our live case study they prepaid;

  • Rent on their premises (owned by their super fund)
  • Insurance
  • Accounting fees (only if you got extra-ordinary advise)

This gave them a tax deduction for $45,500 and saved them $12,512 in tax.

Other expenses you could consider are;

  • Subscriptions
  • Interest on loans
  • Repairs on vehicles

Each business has different operating expenses, remember for every dollar you spend you save money.

So far our live cased study has saved a whopping $35,964 in tax, money that will stay with them. Its money they can choose to spend, or just save…the choice is theirs.

Ask yourself these questions;

  • How much have I given away in the past?
  • Could I save as much?
  • Do I really just want to give it to the ATO?
  • What would I do with my savings?
  • What do I need to do to start saving tax?

In summing up, we only looked at only 4 Tax Saving Concessions and saved a bucket load of money in our live case study; imagine what you could do by starting a conversation?

In our “Tax Optimisation Matrix” (Tom for short) we have developed 27 strategies to help you pay less tax and keep more of the money you earn each year. If you wish to reach out to us, do so by taking a Deep Dive Session or if you just want to have a 10 minute chat, you can contact us at www.cr.com.au anytime.