Sore shoulders from carrying around the weight of your tax debt? When it comes to taking care of your finances at tax time, you can often be left with more questions than answers. Tax matters aren’t always black and white so as a self-employed worker or small business owner, it’s your responsibility to plan ahead and keep on top of your finances throughout the entire financial year.
We’ve heard many stories, both basic and complex, yet for the most part, there are four reasons why people end up with tax debt. Check them out below and our tips on how to avoid it in the future…
You Didn’t Pay The Debt When It Occurred
Tax debt can mount up very quickly if it is not managed consistently and correctly. Most penalties and interest can virtually double in size over as little as 3-4 years. To assist, the ATO has measures and tools in place to help individuals and businesses avoid tax debt. One of those measures includes quarterly payment installments, giving you the option to pay as you go. Paying your tax debt on time is crucial to ensure late penalties and interest is avoided.
You Didn’t Make Enough Money
While this can be true, it is not a reasonable excuse for the taxman. If you didn’t make enough money, sometimes the answer to your problem is plain and simple. Charge more. Then remember to bill for everything and chase those payments until they are received.
You Don’t Have Any Money – Even Though Business Is Great
Poor cash flow is the culprit here. There can be a few reasons why business is great, yet you still don’t have any money; forgetting to bill people, letting clients get away without paying you, not looking closely enough at the cost of running your own business or your business taking a downturn and not making any adjustments. This is why it is so important to stay on top of your finances throughout the entire financial year; it’s the key to successful business.
You Spent It All
Ooops. This happens all too often to many of our clients, and is one of the major reasons for tax debt. A business is only able to provide based on its earnings, hence all those earnings should not be spent. Be wary of digging yourself into a financial hole. Warning signs include delayed payment of PAYG or withholding pay or superannuation from employees.
So, How Do You Avoid Tax Debt?
Organisation is key – boring, but true. Too simple, you say? Not necessarily. You need to plan and manage your tax obligations regularly and responsibly which takes work. For those who aren’t self-employed, their employer withholds a portion of their earnings to forward to the Australian Tax Office at tax time, however for those who are self-employed, this isn’t done for you so managing tax debts often becomes tedious.
Make sure you are aware of your tax obligations and the related key dates throughout the financial year. Ignoring your debt will never help, as it then makes it impossible to pay it off in one go, exaggerating the problem. The ATO suggestions that the only way to manage your tax correctly and avoid tax debt is to pay on time, every time. If you’re feeling overwhelmed, this is where it can be handy to seek help from a service like Just Done to help you manage this. It will end up saving you a lot of time and money.