I have started a small cleaning business. My business partner and I are going to a free consultation with an accountant to discuss what we really need to know and look out for. We will be doing our own taxes etc. But we are wondering if you can help us with some well-thought-out questions to ask. We have a few questions already, mostly about taxes. It's unsettling to know we could be missing some very important information. Your help is very appreciated!
Tax can be complicated, especially for a small business. Unless one of you is a practising accountant, I'd say you're going to have a tough time understanding tax law and using it to your advantage. Using a free consultation as a guide might provide you with some insight, but let's be honest here - you get what you pay for! Professional accountants are paid to look at your personal and business circumstances and make recommendations that will get you the best results. By taking the process on yourself, you may be saving money in the short term, but you're likely to not get the best outcome for your business.
If you're keen on this strategy, the first thing you'll want to talk about is the structure of your business - whether you're a sole trader, partnership, trust or company. The structure will determine how the net income of your business is taxed. Assuming you're in a partnership, you'll probably be looking at a 50/50 profit split and will be taxed on your share according to your individual marginal rates.
Another important consideration is GST - as a small business if you're turning over more than $75,000 a year, you will be required to register for GST and prepare and lodge business activity statements.
Record keeping is both a blessing and a curse as it's a pain to maintain but it can save you time and money when you're getting ready to lodge. There are quite a few software products on the market that can help you maintain your earnings and expenses, so ask the accountant which one they recommend.
Deductions can be confusing for a small business and sometimes there is a fine line between what can be considered a business expense and what is a personal cost. A motor vehicle is a good example because there are numerous methods available for claiming a deduction for motor vehicle expenditure and each vary according to your usage. Home office is another one - if you have an office in your home where you handle bookkeeping and general business administration, certain running expenses can be apportioned based on the size of your office to your home and claimed as a business expense, but you have to ask to find out what you can claim and how to do it properly.
From July 1, 2012, the small business instant asset write-off threshold has been increased from $1000 to $6500. This means that the new carpet cleaner you may have purchased could be fully written-off in the year of purchase rather than having to write it off over its useful life. It would be a good idea to have a list of your equipment purchases handy so the accountant can advise on the appropriate tax treatment for each.
Finally, if you and your partner have any employees or plan to take any on, ask about superannuation guarantee legislation to make sure your business is compliant with relevant super rules. While you're at it, find out how to calculate the appropriate rates of withholding tax that will apply to wages paid. There can be serious repercussions from the ATO if you're not remitting super and tax correctly.
This is some of the important stuff, but it's only the tip of the iceberg. When it comes to business accounting and tax, a DIY job is risky and you could end up paying substantial fines if you get it wrong.
Mark Bouris is executive chairman of the wealth management company Yellow Brick Road. His advice here is intended as guidance only. If you have a question, email it to Larissa Ham at lham@fairfaxmedia.com.au.
Frequently Asked Questions about this Article…
Is a free accountant consultation enough, or should small business owners pay for professional tax advice?
A free consultation can give useful initial guidance, but it’s limited. As the article notes, “you get what you pay for” — a paid professional accountant will review your personal and business circumstances and recommend tax and accounting strategies tailored to you, which can produce better long‑term outcomes and reduce risk.
How does my business structure (sole trader, partnership, trust, company) affect how my business is taxed?
Business structure determines how net income is taxed. For example, in a partnership you’ll typically split profits (often 50/50) and each partner is taxed on their share at their individual marginal tax rates. Ask your accountant about the tax implications of sole trader, partnership, trust and company structures before deciding.
When do I need to register for GST and lodge business activity statements (BAS)?
If your business turnover exceeds $75,000 a year you must register for GST and prepare and lodge business activity statements. If you’re near that threshold, discuss GST timing and BAS obligations with your accountant so you stay compliant.
What record‑keeping and accounting software should a small business use to track earnings and expenses?
Good record keeping saves time and money when lodging tax. There are several small business accounting software products available to track income and expenses. The article recommends asking your accountant which software they recommend so your records meet tax and GST reporting needs.
What motor vehicle and home office deductions can a small cleaning business claim?
Deductions can be confusing. Motor vehicle claims have multiple methods depending on business versus personal use, and each method produces different results. Home office running expenses can be apportioned based on the size of your workspace. Ask an accountant which methods apply and how to calculate claims correctly.
Can I immediately write off equipment purchases like a carpet cleaner?
Yes — from July 1, 2012 the small business instant asset write‑off threshold was increased to $6,500, meaning eligible assets under that amount could be fully written off in the year of purchase rather than depreciated over time. Bring a list of equipment purchases to your accountant so they can advise on the correct tax treatment.
What payroll obligations should I know about if I hire employees (superannuation and withholding tax)?
If you employ people, ask about superannuation guarantee legislation to make sure you are meeting your super obligations. You also need to calculate the appropriate withholding tax rates for wages. The article warns there can be serious repercussions from the ATO if super and tax are not remitted correctly.
What are the risks of doing my own business accounting and tax without professional help?
Doing it yourself can save fees short term but is risky. Tax law is complex and mistakes can lead to substantial fines from the ATO. The article advises that a DIY approach may not deliver the best outcome and recommends getting professional advice — Mark Bouris (executive chairman of Yellow Brick Road) offers this guidance as a starting point.
Call 1300 880 160
Start a chat
Schedule a call
