Tax Planning Starts Now!
We are barely over the Christmas and school holiday period, so planning for taxes is probably the last thing you are thinking of as you get stuck into the new year.
However, having a plan and doing it in advance is useful for both businesses and in a personal capacity. After all, your goal is to minimise taxes, and protect your financial goals so you can achieve greater peace of mind.
So, what exactly is tax planning?
It is the review of your projected tax position at the end of the financial year to minimise tax, plan how to fund it, and more importantly maximise what you get to keep.
Planning ahead is essential and shouldn’t be left until 1st June to look or consider. Some strategies take time to implement and now is the time to consider which strategies to put in place.
Basic Tax Planning Strategies
Basic tax planning strategies include reducing your overall income, such as by contributing to retirement plans, making tax deductions, and taking advantage of tax credits. Here are a few examples of some strategies you could use:
Manage your accounts receivable
Review your debtors or accounts receivable. If you have unpaid debts, consider writing off the amount as a bad debt before the financial year ends.
Pre-pay expenses
Prepay expenses that you would have incurred in the following financial year allow you to reduce your overall taxable income for the current financial year.
Maximise superannuation contributions
Super contributions offer a tax-effective way to save for retirement. Contributions made from your pre-tax income are taxed at a lower rate than regular income. By maximising your super, you can reduce your taxable income, potentially lowering your overall tax bill. It is essential to consider both concessional and non-concessional contributions and their potential tax benefits.
Trusts
Trusts can be tricky to manage but they can be an incredibly effective – and legal – way to keep more in your pocket rather than handing it over to the tax man. In order to access these benefits, there are certain formalities and requirements that need to be addressed and looked PRIOR to the end of June, eg. Establishing trust income distributions before 30 June. If you don’t, you can trigger default beneficiary clauses, potentially leading to unintended profit distributions or subjecting the trustee to taxation at the highest marginal tax rate (49% including Medicare Levy) on the entire assessable income of the Trust.
Why do it?
- Only pay as much tax as you need to
- Minimise the impact of surprises
- Highlight potential issues to give yourself the best chance to take corrective actions
- Peace of mind that there will be enough cash to pay it
We know this stuff isn’t exciting (for most) and it can keep being put off, however starting your tax planning now, can make a big difference to the money you have in your bank account on 1st July.
We will talk more about Tax reduction strategies in another article soon
