TAX PLANNING 2020

TAX PLANNING 2020

TIP #5 – BAD DEBTS

At this time of year we need to clean out the cobwebs, especially so for businesses where outstanding debtors have been neglected, not chased and remain outstanding over a period of time.

Do you have any bad debts?   Meaning money that debtors owe you but that you’re unlikely to ever receive.

Now is the time to WRITE OFF any BAD DEBTS to assist with minimising your tax liability.

Here’s what to do:

🚩 Ensure your accounting file is up to date and banks are reconciled to the day

🚩 Display report “Aged Receivables” detail

🚩 Run through the report thoroughly and identify any customer invoices that may potentially never be paid

🚩 Once identified, consider whether the debts are “doubtful” or “non recoverable”

🚩 Leave the doubtful debts alone (obviously chase them up asap), and make a commercial decision on the finality of the non recoverable debts

What are the rules around claiming deductions for bad debts?

✅ Tax deduction by the business can only be made where a debt actually exists, ie money is actually owed

✅ Business must have made the decision that the debt is not recoverable, and not merely doubtful – record in writing

✅ If monies are recovered on a debt that has been written off and tax deduction claimed, the receipt must be included as assessable income

*** NOTE *** If you do not have a TAX PLAN 2020, get in touch and ensure you are well prepared in advance of financial year end.  As a result of Covid-19, businesses are in line for material tax savings never experienced before, all designed to assist your business through the pandemic.

If you have any questions at all regarding financial and business matters, please don’t hesitate to contact us.