Don’t pay more tax than you need to
If you are finalising your end of financial year accounts and calculating your tax position, keep in mind that there are still options available to save you tax.
One of these options impacts on the valuation of your trading stock and if stock is a material asset in your business, you should most certainly consider it. This option provides you with different valuation methods that can be applied to your trading stock.
The majority of businesses value their trading stock at cost and in many cases this is the right valuation approach. However the Tax Act gives you the choice of valuing your stock at the lower of cost, market, or replacement value.
Tax planning: where are the real benefits?
Some tax planning only creates timing benefits rather than real savings. So the question is; what delivers real results? The majority of tax planning falls into one of three categories – health and hygiene decisions that every business should review each year, timing benefits, and permanent savings.
The timing benefits do exactly that. They create tax savings that should ultimately materialise over the life of the business but they bring them forward.
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Avoid these tax minimisation mistakes in the end of year flurry
Q. We’re starting to think about the end of financial year and some tax planning to maximise our tax position. Are there any obvious things we should be looking at and are there any traps we need to watch out for? My partner is keen to get every possible tax deduction but I’m not sure how far we should go.
A. The end of financial year always causes a flurry of activity. The earlier you can plan this out the better the chance that you will not get caught making poor decisions. The three biggest mistakes are; spending simply for sake of the tax deduction, taking deductions that will cause you a cash flow problem and taking a lower value tax deduction this year only to pay the tax at a higher rate next year.
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Time to start thinking about the end of financial year
If you haven’t done so already, now is the time to start thinking about the end of financial year. Last minute tax planning can be a recipe for poor decisions and you need to work through the cash flow implications on anything you decide to do.
No point saving some tax if you create a cash flow crisis in the process. Tax planning these days falls into three baskets – health & hygiene, timing & efficiency, permanent savings.
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Need for End of Year Reporting
Q. We have recently completed our end of financial year management accounts. We expect there will be additional adjustments still to flow through before we finalise them. We are fairly busy at the moment with current year work and would prefer to leave the wrap up of our financial statements until later this year. Our accountant is pushing us to finalise some of these end of year adjustments. Why all the rush?
A. This is probably a good question to ask your accountants. They would have a better idea of your reporting requirements. Your tax returns certainly will not be due until later in the year or next year. The exact date depends on your entity structure, your size and your past tax history. There are however other reasons why you may need to complete your financial statements at an earlier time.
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