As your business expands and grows you will need additional financing that matches the need to cover for the expenses that come with success. This does have an impact on your tax bills and you need to address this properly before taking a business loan. Most of the profits you get have to be destined for specific accounts. As such every single cent has to be accounted either as taxable income or as a deductible due to operational costs.
The best thing about the Australian legal system that regulates taxation is that a business loan is not considered a taxable income, mainly because is money that will be returned and that most likely will take away from your profits as you cover interest rates. Of course, there are a few exceptions to the rule, the most notable one being that if your debt gets forfeited, you will have to pay taxes over the amount of money you still owed.
Taking a Loan, Figuring Out Deductibles
Another tip to handle your taxes before asking for a business loan is by taking into account the fact that you can deduct the interests if the money is used only on your business operation.
If you happen to stumble upon unexpected expenses related to your personal matter, you need to keep the receipts mainly to manage the accounting and inform the tax agent handling your forms the amounts of money that are no deductible.
Once you ask for the loan and begin to make payments you need to take into account how much of the money granted falls under the distinction of not being considered a business expense, since the original money offered by the loaner is not considered a cost to your business, but the interest generated by it can be considered a deductible.
Learning about The Approach to Taxes and Deadlines
Although we always recommend our clients to get an experienced accountant to handle their taxes, there is always somebody willing to take the challenge and manage both their personal taxes and the ones related to their business on their own.
There are quite a number of differences between the processes of filing taxes as a regular person or as a business owner. The forms, for instance, are very different depending on the type of business you are managing. There are C-rated corporations as well as S-rated ones (a feature specially designed in accordance with the amount of revenue you generate in a year).
There are also special considerations if your taxes have to be calculated in accordance to your share of a business, meaning that partnerships pay different tax fees to operations managed by a sole owner. In Australia there are severe penalties related to deadlines, so the best approach to them is to be mindful of payment before the final deadline.
Tax Form Available in Australia
As you embrace the administration of the money offered on a loan, is good to understand the specifics of the forms use to pay your taxes, even if you are not the one doing it by yourself.
Unlike personal tax forms which are labeled with the serial number 1040 as well as special variations to attend specific cases, business tax forms are identified with the serial 1120.
There are only two main variations of it, the regular 1120 is the standard form issued to most business out there, but the 1120S is the one used to offer details on the performance of business with public offer in the form of shares such as the income generated for each shareholder, the losses experienced across a years as well as the dividends paid by the venture.
Finally, there is also the form 1065 that is mostly used to report the same details focusing on private business partnerships.
Learning about Deductibles
If you wish to handle the deductibles of the money used for a business loan in a more efficient way, the best legal approach you can take is to read the regulations issued by the tax office of your region. There are however a few exemptions that are very common across the mainland. The first one being all the expenses generated by a home-office, this especially helpful for the people that work from home since they can place deductibles on their own households such as rent, mortgage or utilities.
If you buy supplies and equipment with the money granted with the loan these also qualify for a deduction, this applies from heavy machinery to laptops, the software packaged on them, or paper supplies. You can also apply deductions to business-related expenses generated by using your personal vehicles, such as the mileage generated on a single trip, the tools and the parking paid for as you work to procure more income.
Finally is good to point out the fact that while taking into account the expenses of a business loan is very useful to minimize the impact of tax collection, the financial instrument can also be used to cover for the expenses generated by taxes for a business that doesn’t have the cash flow to cover for them before the established deadline.