Our director Nick Hill warns of deduction myths and how to avoid falling into “spending to save” traps in 2021.
February is fast approaching (yes, already) and it is a great month for the Australian small business community- off the back of the year that was 2020 and a well-earned break- to be getting back into the swing of things.
In the spirit of recovering from the impacts Covid-19 had on business, everyone is looking to save money where they can, and a lot of businesses and individuals are after some key strategies to save on tax. But one thing is for sure, as per our director Nick Hill: “the strategies do not involve spending money to save tax.”
“A lot of people don’t truly understand the value of a deduction,” Nick explains. “They think it is dollar for dollar which is not the case… you don’t spend money to save tax, plain and simple.”
He also cautions against “tax back” schemes that are designed to mislead consumers into thinking they will get the complete amount of a purchase back on tax.
“How much you get back from your deductions is dictated by how much you earn. It can be anywhere from 0 to 49%.”
For example, working on a 30% deduction, for one dollar spent, you would get 30 cents back- not one dollar. “If you are there thinking that your accountant is getting you back more than another accountant, I’m sorry to say we are all dictated by this same rule,” Nick explains. “The only way that is happening is through fraud and sadly for you, the ATO has made it their mission over the last couple of years to pursue dodgy accountants and their clients.”
To save on tax and improve Cashflow (whilst maintain compliance) Nick instead recommends 5 steps, which we will delve further into next week:
- Report– Put together a detailed 30- day cashflow forecast
- Cut– Review your cashflow and start slashing unnecessary costs
- Cash Up– Get the list of all your trade debtors/accounts receivable so you can call everyone who owes you money and ask them to pay
- Debt Up– Apply for a loan or overdraft (rule of thumb: go 10% of your annual revenue)
- Ask for Help: See your accountant/business coach/financial advisor who can assist you with reviewing the above items and improving your cashflow.
Need help with any of the above? Let us help you make it count for your business in 2021.
