Many small businesses run into costly mistakes when filing their taxes without the support of an accountant.

This isn’t surprising. Small business tax accounting is complicated, so unintentional mistakes are often made.

For example, many business owners struggle to provide evidence for transactions, or even miss out on tax deductions they’re entitled to. They often end up paying more tax than required. 

Although it’s tempting to “wing it” on your own, you could spend an entire day trying to make sense of government paperwork – which takes away from other business priorities. 

This article explains some of the lesser-known details of small business tax accounting, such as general deductions and COVID-related tax breaks.

For tax purposes, you’re defined as a small business if you earn less than $10 million in annual turnover (this includes the aggregated turnover of every connected or affiliated business).

Crucial information about small business tax accounting:

If you meet the ATO criteria for a “small business entity”, you may be eligible for particular allowances when filing your tax return. Let’s look at a few examples related to tax deductions. 

Temporary full expensing (TFE) for assets:

Is your aggregated turnover less than $5 billion?

For 2020-21, 2021-22, and 2022-23 tax returns, you may be able to deduct the entire cost of eligible capital assets from your profit for the year. If so, you no longer have to worry about depreciating the cost over a few years. The federal government introduced this temporary measure to help businesses recover from the global pandemic. 

This law applies to new and second-hand assets first held, used or installed by you from the 6th of October 2020. Examples include tools, equipment, motorbikes, solar systems, plants, office furniture and fittings. 

You can only claim the TFE deduction for business purposes. In other words, if you conduct business on your laptop 20 per cent of the time, you can only claim a 20 per cent deduction.

TFE aside, you may be able to claim general tax deductions for other expenses:

Small businesses can claim tax deductions for general business expenses. Examples include:

• Advertising and sponsorship costs for promoting your business
• Costs related to business travel (such as airline tickets)
• Business vehicle expenses
• Work-from-home costs (including heating or phone bills)
• Insurance and workers’ compensation premiums
• Cars (as depreciating assets)
• Maintenance of equipment, machinery or tools
• Superannuation allocations to an employee’s fund
• Salaries paid to employees or yourself
• Small business tax accounting expenses (hiring a professional)
• Financial losses resulting from theft by an employee

Always keep records:

Be sure to keep paper or electronic records that you can easily access to prove any business sales and transactions made during the financial year. You’ll need this if the ATO asks for verification!  You must keep these records for five years, according to tax legislation. 

• Tax invoices
• Wage and salary records
• Receipts 
• Purchase or sale records
• Asset and expense invoices
• Activity statements
• Fringe benefits tax returns
• Contributions to employee super, wages and tax declarations
• Employee contracts
• Bank statements
• Credit card statements
• Vehicles records
• Debtor and creditor details

Benefits of hiring a professional for small business tax accounting:

An experienced accountant can help you to avoid getting fined for filing your tax return incorrectly. 

We also know all the tax deductions you may be eligible for, and can help you to lower the amount of tax that you owe (using legal methods). 

Trained professionals only need a few hours to file a tax return, so you don’t need to hire an accountant full-time, or even on a retainer. 

Remember, you can always claim the accounting fees as a tax deduction too! 

Xperion small business tax accounting specialists: 

The Xperion team loves handling the boring details of small business tax accounting. We’ve been helping business owners and budding entrepreneurs for decades, so we can make this easy for you. Contact our team for a free no-obligation consultation.