As a tradie, you work hard to provide quality services to your clients.
But when it comes to your own business, it's important that you're taking care of yourself too! With proper accounting and tax planning, you can make sure you're getting the most out of your hard earned cash.
Let’s lower your tax burden and increase your profits with these 10 tips for trade businesses like yours:
1. Cash flow
Cash flow management is crucial for tradies to ensure financial stability and increase profitability.
Keep a close eye on your cash inflows (revenue from clients, payments, etc.) and outflows (expenses, bills, etc.). By accurately forecasting your cash flow, you can plan ahead and make informed decisions to avoid cash shortages or excessive spending.
Additionally, you can implement strategies to improve your cash flow, such as:
- Invoicing promptly and following up on overdue payments
- Negotiating favorable payment terms with suppliers
- Controlling and reducing unnecessary expenses
- Offering discounts for early payment to incentivise clients
2. Claim all eligible deductions
As a tradie, there are many deductions that you may be eligible for, such as tools, equipment, and vehicle expenses. It is important to work with an accountant who specialises in tradie tax to ensure that you are claiming all eligible deductions and maximising your tax savings.
There are a number of eligible tax deductions tradies should be aware of, here's 6 to get you started:
- Tools and equipment
- Motor vehicle expenses
- Work-related clothing and protective gear
- Training and education
- Home office expenses
- Insurance premiums
3. Plan your purchases
By planning your purchases, you can time them in a way that maximises your deductions and minimises your taxable income. This not only helps with cash flow but saves on tax.
For example, if you know that you will need to purchase new tools or equipment in the future, you may want to consider the timing of the purchase of the equipment and in particular which financial year.
4. Consider different business structures
The business structure you choose can have a significant impact on your tax obligations.
For example, if you are a sole trader, you will be taxed at your personal tax rate. However, if you operate as a company or trust, you may be eligible for lower tax rates and other tax benefits. It is important to consult with an accountant to determine the best business structure for your specific situation.
5. Take advantage of tax concessions
There are several tax concessions available to tradies in Australia, some common tax concessions include:
1. Small Business Tax Offset: This offset allows small businesses, including tradies, to reduce their tax liability. The offset is calculated based on the individual's share of net small business income.
2. Simplified Depreciation Rules: Tradies can take advantage of simplified depreciation rules, such as the small business pool and the general small business pool. These rules allow for accelerated depreciation deductions on eligible assets.
3. Small Business Energy Incentive. Small businesses may receive an additional 20% deduction for electrification and efficient use of energy when purchasing certain energy efficient assets during the 2023 - 2024 financial year.
4. Small business skills and training boost. Small businesses may be eligible to receive a 20% bonus deduction on certain eligible training and expenditure for employees. This expires on 30 June 2024
5. Apprenticeships Victoria. You may qualify for a range of subsidies and incentives designed to make apprentice and trainee employment more worthwhile.
6. Keep personal and business expenses separate
If you’re not already, it is important to keep your personal and business expenses separate. This not only makes it easier to track your business expenses, but it also ensures that you are not claiming personal expenses as business deductions. This can save you from potential penalties and fines from the ATO.
7. Consider superannuation contributions
Making superannuation contributions can be a tax-effective way to save for your retirement. As a tradie, you may be eligible for tax deductions on your super contributions, which can lower your taxable income and increase your tax savings.
8. Hand over your BAS and GST obligations to an accountant
As a tradie who has sales/turnover greater than $75,000 per year, you are required to lodge a Business Activity Statement (BAS) and pay Goods and Services Tax (GST) on a regular basis. It is important to keep up with these obligations to avoid penalties and fines from the ATO. Rather than spending too much time working these out yourself, a tax accountant can help you save you money by making sure you don't miss anything on your BAS.
9. Use software to streamline your accounting
There are many accounting software programs available that can help you streamline your accounting processes. These programs can help you keep track of your income and expenses, generate reports, and even file your BAS and tax returns.
By using technology, you can save time and reduce the risk of human error in your accounting. Check out our blog: Streamlining your bookkeeping with accounting software
10. Knowing your business
Finally, it is important to know your industry and business. Each business has unique opportunities to take advantage of, and risk factors to mitigate.
By working with an accountant who can take a look under the hood of your business and identify your exact needs, you could save massive amounts on tax and ultimately run a more profitable business.
Work smarter, not harder
As an accountant who has worked with all kinds of tradies from plumbers and electricians to builders and landscapers for over twenty years, we've got the insights you need to save on tax and increase your profits.
If you start planning now then you’ll benefit from working smarter, not harder.
Book a call with a tradie accountant expert.
