The end of the financial year is a stressful time for many, especially with tax obligations ramping up along with all of your other responsibilities. However, while this period can be super stressful and complicated for business owners, it’s still super important that you know how to do your taxes correctly to avoid getting in trouble or paying too much.
Have you found yourself making mistakes on your tax returns before? It happens to the best of us, but it can lead to fines, deductions, and delays – so we want to avoid them as much as possible. Keep reading to learn about the most common EOFY tax mistakes and how you can prevent making them.
What is EOFY?
EOFY is simply a shortened way of saying end of financial year, or end of fiscal year. The financial year is a 12-month period of trading that is used for tax purposes. Businesses need to keep track of all of their income and deductions for this 12-month period, as this will help determine how much tax they need to pay the government (how much the government owes back to the business).
The Australian tax year begins on the 1st of July and ends on the 30th of June each calendar year. When lodging your own tax return, this needs to be completed by the 31st of October each year.
Seven common mistakes made at EOFY
1. Not claiming the correct deductions
There are plenty of deduction claims that you can add to your taxes to save money on the overall amount you’ll pay, which can really help business owners keep their costs low and reduce that tax bill as much as possible. However, a common mistake made is either under or over-claiming expenses. Under-claiming will lead to you missing out on tax savings, while over-claiming might raise alarm bells and lead to business audits.
The solution:
- Know what you can claim for: Do your research on your deductible expenses, including things like home office expenses, work-related travel, and self-education costs, so you know what to include in your tax deductibles.
- Make sure your records are accurate: Always keep your records accurate and up to date with deductible expenses throughout the year – bonus points for using digital tracking tools that take all the guesswork out of remembering your annual expenses.
- Know what’s a personal expense: Personal expenses can’t be claimed as work-related expenses, and mixing these two things up can lead to your claim being disallowed with potential penalties thrown in, too.
2. Incorrectly reporting your income
At first glance, you might think that correctly reporting your income is the easiest part of any tax return – but there are several ways people can slip up here. You’ll need to report all sources of income, including side businesses, investments, and rental income, along with the money you make from your main gig. Failing to report all sources of income can lead to inaccurate returns, which might lead to audits and discrepancies between you and the Australian Taxation Office (ATO).
The solution:
- Track all of your income: We can’t stress enough the importance of tracking all of your income – including salaries, freelance invoices, investments, and rental income – to make sure you don’t leave anything out on your tax return.
- Declare all income: It doesn’t matter how small you think an income is; the ATO cross-checks data with other financial institutions so they’ll be able to see if you’ve left something out.
- Cross-check your own statements: It pays to be diligent, so compare your records with statements from your banks, investment platforms, and elsewhere.
3. Not having all the correct documents you need
Tax returns often require a lot of documentation so you can prove your financial information is correct, so submitting your return without all of the necessary proof can be a huge red flag to the ATO.
The solution:
- Keep a record of everything you’ll need: Most businesses find it really helpful to create a checklist of the necessary documents they’ll need to send, including statements, receipts, and more to make sure they don’t forget anything.
- Review your return before submitting it: Double-check that you’ve included everything you should have in your return before submitting it, as skipping this could lead to delays and audits.
- Seek the help of a professional: If you’re not sure about the documentation you need or how to organise it all properly for your return, talk to a tax professional and ask them to look over your return before you submit it.
4. Missing the deadline
This is a rookie mistake, but it’s more common than you might think. Some business owners are simply too busy to remember all the important dates like tax returns, so they miss it! Depending on how drastically you miss the deadline, you might find yourself liable to fines and interest charges.
The solution:
- Keep a calendar of important dates: Mark your calendar with the important dates (making sure they’re relevant for Australia), which are 30th June for EOFY, and 31st October for the individual tax return deadline
- Give yourself plenty of time to prepare: Filing your tax return isn’t a short process, so give yourself plenty of time to prepare and start gathering all relevant information early so you don’t have to scramble to find everything in the last week of October.
- Use online tools: ATO offers the myTax platform to help you lodge things as you go throughout the year, which is an efficient and helpful tool that can help you stay up to date with your tax return and remind you when the deadline is coming up.
5. Forgetting to take tax offsets and rebates into account
Tax offsets and rebates are in place to offer you a way to reduce the amount of tax you pay on your taxable income, so they can be really useful for businesses with higher thresholds. Claiming these is up to you, so failing to do so can lead to higher tax liabilities than necessary – meaning you pay more than you need to.
The solution:
- Check your eligibility: Use the ATO’s website to check available tax offsets and rebates currently on offer, such as the Low and Middle Income Tax Offset (LMITO), to see if your business fits the criteria for any.
- Always claim correctly: Make sure you meet the criteria for eligibility before claiming for them on your tax returns.
6. Overlooking your superannuation contributions
You’ll need to pay superannuation contributions to your employees’ complying funds or retirement savings accounts, otherwise you might get in trouble with the ATO. Not paying these or misunderstanding the rules can lead to several missed tax benefits, too, leading to you paying more than you need to.
The solution:
- Know what you need to pay for yourself and your employees: Make sure you fully understand the rules surrounding what superannuation payments you need to make for your business’s employees to avoid getting in trouble.
- Keep records of each payment: The last thing you want to do is exceed the caps for each employee, so keep records that you can go back to to prevent paying too much.
- Super co-contribution: Read up on the eligibility for the government’s co-contribution offer and make sure you meet the criteria to benefit from this.
7. Not consulting your previous returns
Filing tax returns is a learning curve, especially for business owners who are doing it all on their own. It’s more than likely that you might make some mistakes on the way, but it’s super important that you rectify these in the coming years to prevent losing out on more money and not claiming refunds due to uncorrected mistakes.
The solution:
- Rectify mistakes on past returns: The ATO lets you amend your past returns within a certain period of time, so if you notice anything that you’ve filled in incorrectly, change it so that your information is all correct.
- Carry your losses forward: Always carry forward any business or capital losses to offset future gains, as this can prevent you from missing out on the money for good.
Final thoughts
Avoiding common tax mistakes at the EOFY can save you a lot of issues in the future, but they require plenty of careful presentation, accurate records, and timely action. Understanding everything the ATO offers about record keeping and tax returns can save you lots of money – and even help you find benefits that you’re eligible for! Use their free resources to make sure you’re aware of all relevant information that can be used to make each EOFY smoother and less stressful for your business.
Book A Free Strategy Meeting With A Business Accountant Today
Filing your tax return is just another thing in the neverending to-do list for business owners, but it’s incredibly important that you get it right. Hiring a business accountant can take plenty of pressure off of you as they’ll be able to help and shoulder most of the burden, as well as look over the return before submitting it to make sure everything’s correct and nothing’s been left out. Why not book a free strategy meeting with Walker Hill to discuss your options today?
