Preparing for the end of financial year
The end of the financial year is approaching very fast and there are a number of things that business owners should attend to before then.
No, I am not referring to going to end of season sales or getting the last bits of your body tanned. I am referring to matters that you may not particularly relish dealing with, but which you can get a lot of tax benefit from. Matters that if not dealt with correctly, could see you losing significant benefits, as the following story illustrates.
A new client approached us to prepare their financial statements. During the initial conversation, it transpired that their previous accountant had written off bad debts. Unfortunately, when we reviewed this it turned out that the write off was not done within the required timeframe, nor was it reflected correctly in the general ledger and their accounting system. As a result of this error, the client lost the opportunity to reduce their profit by almost $300,000 and had to pay tax on this amount, when they were very short of cashflow.
At GRA we always look out for opportunities to optimise the tax position of our clients. Below is a list of some of the things it is prudent to pay attention to before the end of the financial year.
Fixed assets write off
Identifying potential write off of fixed assets which are no longer in use, or were sold or damaged, provides an opportunity to clean the fixed assets schedule and also get some tax savings there.
The write off of bad debt has to be done before the end of financial year in order to ensure that you get tax deductibility. If you did everything you could to get paid for some of your accounts receivable, but you are not likely to be paid, now is the time to speak to us about writing off of bad debt.
Holiday pay and bonuses accruals are also something that could be beneficial to look at before the end of financial year, as these have to be paid within 63 days of the balance date to ensure they are tax deductible.
Closing stock calculations are always important to do at the end of the financial year, as they can have a significant impact on your taxable position.
There is also a tax planning opportunity with dividend declarations. This is applicable to businesses where the shareholders take drawings on a regular basis and the current accounts could be overdrawn closer to the end of the financial year. It is important to be proactive here, as there is a resident withholding tax that has to be paid on the 20th of April, if the dividend is declared in March.
Once the above things are sorted, then you can go to the end of season sales etc.