How Do Small Businesses Prepare Taxes?

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    This tutorial outlines where to start, what to know when it comes to filing taxes for small businesses, and some tricks to help you receive more money back. As a result of the COVID-19 epidemic, it will also detail what you can anticipate from the government in terms of tax refunds and waivers.

    For small business owners, taxes can be challenging. There are numerous deadlines to meet and numerous rules to abide by.

    Please be aware that this guide will provide you with an overview of what to expect with regard to your taxes and what changes to expect as a result of the government's reaction to COVID-19. It will, however, direct you to other pertinent tutorials if you want more in-depth knowledge.

    Would you like to speak to a specialist? Book a complimentary discovery session by calling: (03)999 81940 or emailing team@klearpicture.com.au.

    How Income Tax Works?

    Your taxable income determines how much income tax your company must pay. Your assessable income less any deductions is used to compute it.

    • Generally speaking, assessable income is money that your company makes. It comprises all gross income (before taxes) from your regular business operations (sales, for example) and any other income unrelated to those operations, including capital gains. It excludes GST credits and GST payable on sales you make.
    • You can deduct money for costs associated with running your firm.

    Any year that you operate your business requires that you file an income tax return. Even if you don't anticipate having to pay taxes, you still need to instal.

    When it comes to taxes, your professional advisor can provide you with crucial business guidance, especially if the effects of COVID-19 have caused you disruption. You can explore opportunities to innovate, pivot, restructure, or even abandon your firm with the aid of your CPA Australia-registered tax agent. We've created a variety of resources to support your company, including a recovery roadmap, a business recovery guide, and a factsheet containing financial data to assist you in getting ready for meetings with your adviser.

    Small companies must make sure its bookkeeping and deposits are accurate and current. You should seek expert tax guidance, particularly when more complicated tax issues are involved. This comprises debt that has been refinanced, losses, restructures, capital gains tax, revenue from personal services, declarations and distributions of trusts, and loans from private companies.

    What Is Tax Filing?

    There are three primary tax return types that businesses must typically file:

    • GST & BAS
    • You might need to increase your costs to cover this tax. The government wants you to gather that money on their behalf and transfer it to them at predetermined intervals.
    • Income tax
    • This is determined as a percentage of your earnings.
    • Employee-related taxes
    • You must deduct income tax from your employees' paychecks and give it to the ATO. Payroll taxes may also be due by the employer.

    How do I pay my taxes? What are the primary taxes?

    • GST. 10% of your taxable goods and services must be paid. To pay for it, you must increase the price of these things by 10%.
    • PAYG. These are taken out of the gross pay you give your employees.

    Why Does It Matter?

    It's equivalent to giving money away to pay too much tax. You could get into problems if you pay too little. You have a much better chance of managing a successful and largely trouble-free business if you do it well.

    Tax Reporting Requirements

     Payroll reporting

    As of July 1, 2019, small enterprises with less than 20 employees must use Single Touch Payroll software to submit reports to the Australian Tax Office (ATO). For small enterprises, there is a transition period to get ready for this new reporting method, but it expires on September 30, 2019.

    Monthly or quarterly business activity and instalment activity statements

    Businesses must submit a business activity statement (BAS) to the Australian Tax Office (ATO) on a monthly, quarterly, or annual basis (annual GST return, if eligible).

    Instalments for pay as you go (PAYG), withholding tax for PAYG, and other tax requirements are reported and paid using it.

    The Australian Taxation Office (ATO) will automatically send you a BAS when it's time to lodge if you register for an Australian Business Number (ABN) and GST. A BAS must be submitted before the deadline for all GST-registered firms.

    Similar to the BAS, an instalment activity statement (IAS) excludes GST and several other taxes. For PAYG instalment payments, non-GST registered businesses would submit an IAS.

    Financial year reporting

    For tax purposes, Australia's fiscal year runs from 1 July to 30 June.

    For this time period, businesses must file an income tax return. You can include your business income in your income tax return if you run your business as a lone proprietor.

    Reporting JobKeeper payments

    Payments from JobKeeper are taxable and must be reported on tax returns.

    If you are a sole proprietor who has received JobKeeper payments, you must report the payments on your personal tax return as business income.

    You do not have to report JobKeeper payments as taxable income on your individual tax return if your organisation is a partnership, trust, or corporation. You will list JobKeeper payments as business income on your partnership or trust tax return if your company is a partnership or trust. You must include it as income in your company tax return if your business is a corporation.

    As the payments will be listed as salary and earnings or an allowance in the normal income statement or payment summary you offer as an employer, your employees won't need to take any additional action.

    Reporting Cash Flow Boost Credits

    Cash Flow Boost credits are non-assessable non-exempt income, therefore you don't have to pay tax on them. Depending on the structure of your firm, there are numerous ways to disclose this credit on your return or in your financial statements. For further information, speak with a licenced tax advisor.

    How To File Taxes

    GST Returns

    Throughout the year, a bookkeeper or licenced tax professional will frequently handle these. They will keep track of your earnings, correct for the GST you have already paid on purchases, and then compile a GST report or BAS for the ATO. Taxes are typically paid at the time the report is filed.

    Business Income Tax

    Profits are used to compute this. You pay more tax the higher they are. However, in the ATO's view, there are legal ways to reduce your profits. The stakes are high since government tax experts will scrutinise your returns at this point, where things start to become complex. Because of this, the majority of firms use an accountant to complete their income tax return.

    Employee PayG Taxes

    At each pay run, they are calculated and deducted from employee wages. You must also report to the ATO how much you paid your employee and how much tax you withheld at the same time. When to send your taxes to the ATO will be specified by them.

    Modern tax filing

    Tax season is no longer the hassle it once was. Your accountant or book-keeper will have an easier time filing because accounting software can handle a lot of the tedious work. Accounting software, for instance, can calculate taxes due and swiftly generate the records required to complete a tax return. Tax season becomes less stressful and more affordable thanks to these efficiencies.

    Internet usage

    We offer online options to make it simple and quick for you to handle your taxes and retirement savings:

    • ATO Online services – To monitor activity statements and PAYG instalments, manage accounts, set up payment plans, and more, sole proprietors can use ATO Online services from any device.
    • Business Portal – available to all companies, allowing them to manage accounts, amend registration information, and create and file activity statements and annual reports.

    How to prepare and lodge BAS online

    The majority of Australian businesses must pay GST. Additionally, many pay PAYG tax instalments, and some are required to collect tax from workers. Learn how to use your BAS to keep track of everything.

    What is BAS?

    A business activity statement (BAS) lists your primary expenses and summarises the revenue you bring in over a period of time. Small businesses with GST registrations send a BAS to the Australian Tax Office (ATO) to determine:

    • their tax return or GST bill
    • how much tax was deducted from an employee's pay and needs to be reported to the ATO
    • if they are enrolled in the pay-as-you-go (PAYG) system, their income tax instalments.

    Additionally, ABAS can be used to track various taxes and credits, including the fuel tax credit, luxury car tax, wine equalisation tax, and fringe benefit tax.

    Who has to lodge a BAS, and when?

    Business activity statements must be submitted if you are GST registered. Any company can register for GST, and some corporations are obligated to do so. If: You must register for GST.

    • your salary exceeds a specific threshold
    • you operate a cab business.
    • you wish to apply for gasoline tax credits.

    The majority of GST-registered companies submit a BAS every three months. You have roughly a month to finish and submit the report after the quarter ends. Some businesses must file BAS reports monthly, while others may only need to do so once a year. To make sure you meet the requirements, check out the ATO website on lodging and payment.

    How to complete a BAS statement?

    Anyone who completes a BAS is required to disclose the total amount of GST received from customers and the total amount of GST paid to suppliers. These figures ought to be in your company's financial records. If not, you'll need to review your old invoices, receipts, and bank statements.

    The amount of PAYG tax that was deducted from employee wages during the period must be disclosed in your BAS if you pay employees. Your payroll system will have that data.

    Additionally, your BAS must contain an estimate of the tax you owe if you're paying PAYG instalments on company income. That figure is based on the sales you made during that time period, which are listed in your P&L report.

    When you do the BAS online, you can configure accounting software so that all these numbers flow through immediately.

    How to complete a BAS statement

    The amount of GST that was collected from customers and paid to suppliers must be disclosed by everyone who submits a BAS. Your company's accounts ought to contain those figures. If not, you'll need to review your previous bank statements or receipts and invoices.

    If you pay employees, you must disclose in your BAS the amount of PAYG tax that was deducted from their wages during the period. Your payroll system will have that information.

    Additionally, if you're paying PAYG instalments on business income, your BAS must include contain an estimate of the tax you owe. That figure is based on your period's sales, which are listed in your P&L report.

    Accounting software can be configured to have all these numbers transfer automatically to the BAS when you submit it online.

    Pay as you go (PAYG) instalments.

    You'll start paying your income tax in instalments whenever your business and investment revenue reaches a particular level. Quarterly payments are the norm for these. This aids in preventing a hefty tax burden once your tax return is filed.

    Pay The Correct Company Tax Rate And Apply The Correct Rate For Imputation

    In 2019–20, the majority of businesses with combined annual revenues under $50 million will pay taxes at a rate of 27.5%. However, some businesses with annual revenue under $50 million will continue to pay tax at the 30% rate, particularly those whose main sources of income are passive ones like rental or interest income.

    To be eligible for the reduced tax rate:

    • A corporation must have a base rate entity passive income ratio of no more than 80% and an aggregated turnover of less than $50 million, where aggregated turnover is calculated as the sum of the company's ordinary income and the ordinary income of any associated affiliates or entities.

    All businesses that aren't qualified for the lower company tax rate must pay the full 30% corporate tax rate. The ATO perspective is outlined in LCR 2019/5. Entities with base rates and their passive revenue.

    The dividend imputation rules that apply to the franking of dividends by a corporation have changed as a corollary to the base rate passive entity income rules that determine a firm's tax rate.

    These divergent rates produce a variety of complications for businesses, particularly those holding assets and business owners. The best person to help you with these concerns is your tax agent who is registered with CPA Australia.

    Tax Preparation Tips For Small Business

    The ATO reports that thousands of small businesses register each month, so there are likely many new business owners who are ready to undergo their first tax season and are asking how to get more tax back. We have suggestions to help you get ahead of the game because we want to make your life a little easier.

    Be in the know

    The government has launched some fantastic programmes for small businesses. For instance, the instant tax write-off was extended for a further year in this year's Federal Budget. Additionally, there is a reduced corporate tax rate for small firms. Knowing when tax returns are due in Australia and other important dates will help you avoid paying late fines. Are you wondering what tax credits you may be eligible for? Follow ITP on social media and subscribe to our e-newsletter to stay informed.

    Take care of your staff.

    If you employ people, you have a number of responsibilities, including furnishing payment summaries and submitting them to the ATO by July 14th. Due to new tax tables that went into effect on July 1, 2017, the amount of tax they will receive back this year may fluctuate. Make careful to update all of your systems, including your payroll software, to the new rates in order to withhold the appropriate amount of tax from your employees.

    Get your paperwork in order.

    The ATO advises that you maintain all documentation associated with starting, operating, and selling your firm. This covers one-time transactions as well as those that back up the figures and sums you display on your tax return. These must be kept for at least five years. It's crucial to have the proper documentation since a number of elements, such as your income and the tax deductions you claim, may affect how much tax you will be reimbursed.

    Get a little help from the professionals.

    Having trouble filing your tax return? It's not difficult to understand why nearly 95% of small businesses utilise a certified tax expert to file their forms once you start looking over your responsibilities. It's a huge decision to decide who you can trust to handle your tax return and other financial matters. We take pride in the fact that more than 300,000 Australians entrust us with their taxes each year.

    What are the changes to taxes as a result of the COVID-19 outbreak?

    To help the Australian economy survive the COVID-19 outbreak, the Australian government proposed a $66 billion stimulus package on March 22, 2020. The $17.6 billion in packages that were announced on March 12 are in addition to this.

    Up to 700,000 Australian companies who employ workers and have an annual sales of less than $50 million will profit from this package. These tax-free "cash flow enhancements" are offered to qualified businesses when they file their BAS and range in value from $20,000 to $100,000. These include both the original and subsequent cash flow boosts. The amount of tax your company pays on employee wages will determine how much of each set of cash flow enhancements your company is eligible for. Businesses who qualify will be given a credit up to a total of $50,000 each time equal to 100% of the tax withheld from employee earnings.

    Initial cash flow boosts

    Two or four instalments will be used to distribute the initial cash flow enhancements (as per whether your business pays tax quarterly or monthly). The total grant amount for these 2-4 instalments will range between $10,000 and $50,000 per business. The forthcoming BAS due date of April 28, 2020, will mark the start of these cash flow increases for qualified firms.

    Would you like to speak to a specialist? Book a complimentary discovery session by calling: (03)999 81940 or emailing team@klearpicture.com.au.

    Additional cash flow boosts

    For the months of June through September 2020, eligible businesses that already received the initial cash flow increases will receive additional boosts. These increases will be made available in two or four instalments and will be equal to the sum of the original cash flow boosts that the aforementioned businesses obtained. Once more, this will depend on the reporting period for the company.

     

    If you own a company that has operated in the previous financial year, you have to lodge your tax return. There are several ways to do it. You can either lodge it online using myTax or choose to make a paper tax return or hire a registered tax agent.
    between $300 and $1,000
     
    A personal tax return can cost anywhere from $100 to $400, while a company tax return fee can range between $300 and $1,000, and a sole trader can expect to pay $180 to $500.

    Income Taxes for Small Businesses

    Most small businesses are pass-through entities, which means that the business taxes are passed through to the owners on their personal tax returns. Income taxes and self-employment taxes (Social Security/Medicare tax) are based on the net income of your business for the tax year.

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