Featured Image: Gavin Jowitt APP MPhotog ARPS ABIPP
…you won’t believe #7! (Just kidding.)
Ten things you can do right now to be prepared for the End of the Financial Year:
The End of the Financial Year used to always take me by surprise. Each year I’d promise myself I’d be more prepared next year, then it was suddenly June again and I wasn’t ready. You see, I really loath paying tax. Being prepared and knowing your financial position and books can help you reduce the amount of tax payable, if you know how and work well with your accountant.
#1: Get your books up to date.
Now. I mean right now! With everything up to date you can get a gauge of your profit for the year, from which you can estimate your tax (roughly 30% – varying depending on whether you are a sole trader, partnership, trust or company).
#2: Update your Equipment Schedule.
If you don’t have an Equipment Schedule, write one… you need it! With the $30,000 asset write-off we’ve been enjoying in Australia since 12 May 2015, it is possible you’ve not needed an Equipment Schedule for your accounts yet (if you are new to business), but that time will come! (We’ll get to that write-off further down the list.)
Your accountant can help you with a detailed Equipment Schedule when you need one for your tax return (currently for assets purchased this year over $30,000 each which require depreciation). In the meantime, you can create your own basic Equipment Schedule with ordinary spreadsheeting software (Google Sheets is free on Google Drive).
The Equipment Schedule records:
What the equipment is (ie. Canon 5D Mark IV), what date it was purchased, how much it was purchased for and the item’s serial number. We will add other details to this later. Every business asset needs to be individually itemised on this schedule, including phone systems, computers, photographic gear, mobile phones.
My Equipment Schedule’s column titles thus far are:
Date, Equipment, Serial #, Cost.
#3. Find Your Insurance Paperwork.
You know… that paperwork you get emailed annually, pay when it’s due, then file in another folder of your Inbox….? Do you read it each year? Do you think about what is written on it, or do you skim the list of equipment shrugging your shoulders and think, “That’ll do”?
#4. Reassess Your Equipment Schedule.
Now we are going to add a couple of columns to that Equipment Schedule (if you haven’t already):
Insured For, Current Replacement Cost.
Hmmm… see where we are going here? Ideally, these two columns should be almost identical. I can almost guarantee you they are not. Cameras, lenses, phones, computers and most general equipment we use get superseded with new models every other year – sometimes more often!
For the moment, fill in the amount each asset is currently Insured For. Then take some time with a cup of coffee to search your favourite Australian supplier’s online store for the Current Replacement Cost of each asset – remembering to look for the upgraded version if your model has been superseded. Fill this information in on the appropriate column.
#5. Reassess Your Insurance.
Having fun yet? We’re creatives… I get it. We are also running businesses, so we need to jump out of our creative safe space for a bit each year and make sure we are okay moving forward.
The easiest thing to do now is to send your Equipment Schedule to your insurer. Ask them to update the “Insured For” amounts to the current replacement value. They are usually pretty quick to do this and will send you an amended invoice for the difference. Pay this before 30 June and you can deduct it as a current year expense.
Change your Equipment Schedule to show the amount each item is NOW currently insured for.
#6. Assess Equipment To Be Replaced.
The estimated life of equipment such as cameras, lenses and studio lighting is three to five years (ATO TR2017/2, page 225). Whilst well looked after equipment can last longer, professional photographers need to be mindful of replacing equipment before it causes problems.
Check through your Equipment Schedule to assess whether you need to consider replacing any equipment. To be honest, I push my equipment way past the “expected life”, but, when I’ve had a profitable year and if I have a healthy cashflow, I certainly look to replacing equipment before 30 June to take advantage of reducing my profit, therefore reducing my tax payable.
#7. Be Aware Of Government Kick-Backs.
I mentioned the $30,000 Asset Write-Off scheme earlier. It started as $20,000 on 12 May 2015 and was increased for 2019 and extended to 30 June 2019. The new Budget makes provision for the scheme to be extended further.
This is, by far, my most favourite idea from the Government! Other than being able to claim most asset purchases under $30,000 in the immediate financial year of purchase, it’s meant that the average photographer doesn’t need to keep abreast of Depreciation Schedules for their equipment! Huzzah!
Claiming depreciation and/or asset purchase are a great way of reducing your taxable income.
How did those figures look that we finished in Step #1? Is there a healthy profit and do you have healthy cash flow at the moment?
Now have a look at the equipment identified in Step #6. Take these details to your accountant and get advice as to whether replacing some of your equipment prior to 30 June makes good business sense to reduce your taxable income.
#8. Investigate Pre-payment of Ongoing Expenses.
There are some expenses businesses pay reliably each month or year. If your cash flow is very healthy and you are looking to reduce taxable income, pre-paying expenses can be helpful. This is generally investigated prior to May, but it may not be too late to look into it now. In order to pre-pay ongoing expenses you will need to contact the provider, request an invoice for upcoming expenses and pay prior to 30 June.
Some of the expenses I’ve pre-paid in the past have been ongoing advertising in the local paper, premises lease/rent and interest on loans/chattel mortgages. Of course this means they won’t be expenses for the following financial year, but having pre-paid them may help your cash flow to be able to do other things in the coming year. Make sure you are advised by your accountant.
#9. Check on Your Motor Vehicle Expenses.
Do you run the expenses of your vehicle through your business? There are two main ways to do this. You can charge a per-kilometre fee back to your business for business-related travel expenses, or you can claim a percentage of vehicle use through the business. Either way you need to keep a log-book. How does your log-book look? If you are anything like me, the first three weeks are spot-on, then… I lose interest and forget to log trips.
If you charge a per-kilometre fee back to your business each and every trip needs to be entered into a log-book. This is why I opt for the option of claiming a percentage. For this, all you need to do is keep a log-book for three or four weeks and use that percentage as the average for the year. You can’t claim driving to the studio or dropping the kids off at the pool on your way to a client’s house. The only trips claimable are from the studio (home or otherwise) out on work-related trips (jobs, suppliers, etc) and back.
Get your log-books out and start logging! Your accountant will want this information to calculate your expense claim. If you claim personal motor vehicle expenses you may be liable for Fringe Benefits Tax (FBT). It’s easier to manage your setup around claiming the correct business expenses only. Being set up for FBT is a whole other world of annoyance.
#10. Check on Your Home Studio Expenses.
Let’s be honest… most professional photographers these days work from home rather than have lavish, professional, dedicated studios. I, myself, have just moved out of my dedicated studio and back to a home-based studio for ease of operation.
How do you claim for the space your business takes up in your home? End of Financial Year is a good time to make sure you can substantiate your claim and your accountant will want this information. You can claim working from home if you carry out “income-producing work at home and incur expenses in using your home for that purpose”.
Can you claim a deduction?
You may be able to claim a deduction for a percentage of expenses such as gas, electricity, calls, decline in value of furniture as well as curtains, carpets and light fittings, rent/mortgage interest (not principle, just the interest portion), insurance and rates. The easiest way to work out the percentage of use is by actual floorspace (ie. studio/office space might be 25% of the floor area of the house).
This is not an endorsement, but H&R Block have written an easy-to-understand article about claiming working from home here: https://www.hrblock.com.au/tax-tips/claiming-home-office
#11. Reassess Your Business Plan.
I feel like I’m having a bit of a laugh with this one, but I am deadly serious. If you are in business and do not have some sort of business plan, you are setting yourself up for failure!
Your Business Plan should, at a minimum, be able to tell you all your estimates of expenses and income for the coming year, your pricing structure, any expected equipment replacements, a marketing guide and your demographic of client. It’s quite probable you have this in your head already, so write it down!! It’s great to refer to during the year and reassess at the end of each financial year so you can set yourself up for more success in the coming year.
There are guides online or your accountant may be able to help you with create a Business Plan.
#12. Subscribe to the ATO Small Business Newsroom.
I can almost hear how excited you are about this one! A regular newsletter from the ATO in your Inbox? Woot!! What could be more thrilling??
To be honest, it isn’t that bad. It’s a brief email linking back to simple articles (such as those you may have seen me link on the AIPP Community Facebook Group) highlighting changes or things you may need to know to stay compliant within your business’ financial practices.
The “Subscribe now!” button is on the top, right of the website at https://www.ato.gov.au/newsroom/smallbusiness/
Bonus #13. Backup Your Files and Check Your Security.
Whilst not exactly EoFY-based, every business should have two to three dates on their annual calendar to double-check all their backup procedures and security measures are up-to-date. EoFY, April Fool’s Day (with your smoke detectors) and Halloween are great dates to pick!
So Happy EoFY! Set a romantic date with yourself to get through all these tasks and schedule them in your calendar for next May/June (recurring, of course).