The tax system is complex and constantly changing. A good tax advisor is essential to every small business. However small business owners also need to have a good understanding of the basic tax rules and obligations.

1. Choosing the right structure

When starting a business, choosing the right type of structure is very important as it not only affects the ongoing tax position but also the tax implications if you sell in the future. Owners should understand that there are differences between structures and how they work at a basic level. Speaking to your advisor before you get started is the best course of action.

2. Knowing your Obligations

When starting out, many businesses are so heavily focused on getting things up and running that they tend to neglect their tax obligations. If this continues for too long, tax liabilities can compound and when you finally catch up can hit all at once. Furthermore, there are certain obligations such as PAYG Withholding on employee salaries that you can be held personally liable for if unpaid even if the business is operating through an entity. Therefore the best approach is to know what your obligations are throughout the year and keep on top of them.

3. Know what you don’t know

Whilst you may have a good tax advisor assisting you, they are not with you all the time. Therefore you need to have a basic understanding of the tax rules in order to know when something may have tax implications and to check with your advisor. Advisors constantly pick up on potential issues just from speaking with their clients about their business. Typically the business owner has no idea the relevant transaction had any tax effect at all.

Quite often advisors are informed of transactions after they have occurred and are left to try and deal with them as best they can from a tax perspective. This can be a challenge at times as not everything can be fixed. Ideally business owners should be speaking with their advisor before the relevant transaction occurs.

4.  Take Advantage of Opportunities

Tax planning is best done in advance. Knowing the basics will allow you to recognise when a potential opportunity may exist and discuss it with your advisor. Many business owners miss out on tax opportunities simply because they were not aware they existed. Keeping up to date with tax changes (at a broad level) and communicating regularly with your advisor about your business will ensure you capitalize on any opportunities which may arise.