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 firstname.lastname@example.org.