Tax Preparation Tips for Your Business During a Downturn

As businesses face potential downturns in revenue, it’s important to take proactive steps in preparing for the upcoming financial year from a tax perspective. External factors such as staffing shortages, supply chain disruptions, and shifts in customer behavior can all contribute to a quieter period. By planning ahead, you can ensure that your tax situation is handled efficiently, even during challenging times.

Here are some essential tax tips to help you prepare for the year ahead.

Plan Ahead for Changes in Revenue

A great first step is assessing your current taxable income for this year and creating projections for the next year. Understanding that your business may face a revenue decline allows you to plan your tax strategy accordingly. Having a clear picture of your finances will help you take control of the situation.

Consult an Accountant

If you’re not already working with a qualified accountant, now is a great time to get one. A professional can offer valuable tax planning advice and help you explore options such as special depreciation measures, which could benefit your business during a downturn. For instance, they may recommend utilizing the instant asset write-off or temporary full expensing, which allows you to immediately deduct the business portion of certain asset costs.

Review Cash Flow and Expenses

Your tax strategy might include prepaying some of your upcoming expenses to gain a tax advantage this year. Consider prepaying costs such as rent, insurance, or membership fees for professional associations. These expenses can often be deducted for the following year, helping to reduce your tax burden in the current financial year.

Another strategy could involve reviewing your invoicing schedule. If you can delay issuing some invoices until the next financial year, you might be able to defer income recognition, easing your taxable income for this year. Always consult with your accountant before making such decisions to ensure the strategy is right for your situation.

Handling Business Losses

If your business has experienced a loss, it’s important to know that you may be able to use that loss to offset future taxable income or carry it back to claim a refund for taxes already paid. Speak with your accountant about the best approach to manage your business losses and reduce the impact of a downturn.

Consider Government Income and Support

If your business has received government support, such as COVID-19 relief payments, remember that these funds are considered taxable income. Make sure to include them in your business tax return. Additionally, you may be eligible for other small business grants or financial incentives, such as those available for apprenticeships. Your accountant can help determine whether these need to be included as assessable income.

Maximize Deductions

If your business is new, be sure to ask your accountant about possible deductions related to start-up costs. For instance, legal or accounting fees related to setting up your business structure may be deductible. Keeping detailed records of all business expenses and their purpose will help your accountant maximize your deductions within the legal guidelines.

Even if your business is established, it’s worth reviewing which expenses are deductible. There are often overlooked opportunities for deductions, and your accountant can guide you on how to optimize these.

Conclusion

With careful tax planning, you can manage your business’s financial position more effectively during a downturn. By consulting with your accountant, reviewing your cash flow and expenses, and taking advantage of available deductions, you can make the most of your tax strategy in uncertain times.