Tax Deductions for Businesses – How You Can Save Big on Taxes

save on business tax

You have probably experienced it yourself – seeing the underwhelmingly low sum of money remaining after paying taxes to the government, ATO, and commissioner. Taxes are mandatory, but it can take a big hit on your take-home profits.

Luckily, business owners can lower the amount of taxes they pay in several ways. Below, you’ll find Strategiq’s top five tax deduction methods that will help businesses save a substantial amount on taxes.

1. Company Tax Rates

Luckily, the self-employed or business owners qualify for a lower federal tax rate known as a company tax rate. If you own a small or mid-size business, you are subject to a tax rate of 25% (this changes every few years). Larger corporations have a federal tax rate of 30%.

Business tax rates are lower than the majority of personal income tax rates. For example, people who work for an employer must pay 32.5% in taxes on their personal income if they make anything from 45,001 – 120,000. Alternatively, if you make more than 180,001, you have to pay 45% of your personal income in taxes.

2. Family Trusts

A family trust allows you to split your income among your family members. This helps you save on taxes because this means that your income is subject to a lower tax rate.

For example, if I split my $100,000 among two other family members, each person has a personal income of $33,000. That $33,000 then is subject to a low personal tax rate of 19%. Ideally, you want to split the money with family members with a low income like children or retired parents.

3. Contributing to Your Super

There are two benefits when you contribute to a super. For one, you save for your retirement and receive great returns on your investment. Secondly, you can claim a tax deduction when you contribute to your super in Australia. Additionally, super contributions are taxed at only 15%.

4. Asset Write-Offs

The business assets that you purchase within a year can be tax-deductible. As such, you can subtract these assets from your income. The lower your income is, the fewer taxes you have to pay. From computers to machinery, office supplies to company cars, you can write them off in your taxes.

5. Negatively- gearing

This method works best only if you have disposable income. When you negatively gear, you purchase a property where the expenses that it takes to keep that property running (mortgage, maintenance) is more than the income you earn in rent from it.

In essence, you lose money from this property. You can then claim this loss in your income to lower your tax rate. Here’s the silver lining besides the tax deduction – the capital gains after selling that property should offset the loss in expenses from maintaining it. As such, choose a property you know will gain value over the years to come.

These strategies will help you save money from paying too much in taxes. However, keep in mind that regulations and tax rates change frequently. Our experienced accountants and advisors at Strategiq can guide you through the tax process to ensure you’re not draining all your profits.