Wouldn’t it be great if at any point in time during the year you know what your tax bill was going to be at the end of the financial year? Rather than anxiously waiting for the news from your accountant, and most likely getting a rude shock because you’re up for more than you expected.
What a lot of people don’t realise is that you can actually have a pretty good idea of what your tax obligations will be throughout the year and this can be done with some well thought out tax planning.
Eh, sounds boring right? But tax planning can actually be quite exciting, you know why? Because it normally saves you a heap of money! And we don’t know anyone who doesn’t get excited about saving money! Whether it’s reducing your tax bill or actually getting a bigger refund, there are many ways you can use tax planning to improve your situation come tax time next year! Why pay more money to the taxman than you need to, right?
So let’s talk about how tax planning can help you and how you can take advantage of it.
How Can Tax Planning Help?
Whether it’s for business or personal finances, a tax planning meeting will help you take control of your finances and set yourself up for success for the coming year. With an annual tax planning meeting you will be able to benefit from:
Improved cash flow
Improved goal setting & monitoring
Having more control over your money
Better reporting
Easier decision making
By having a meeting with your accountant to review the past year’s finances and discuss your plans for the following year, you will be able to work together to find ways to improve your tax obligations and finances. Together, you can establish what your expectations for the year will be, develop cash flow & financial budgets, know where you should be putting your money or what you should be spending it on, and make overall smarter financial decisions that will have a positive effect on you later in the financial year.
How Can I Use Tax Planning To My Advantage?
Once you and your accountant have established a forecast of what your financial situation is going to look like for the next year, you can begin to take action or make decisions when necessary to reduce your tax liability.
Bring Forward Expenses
If you think you will be experiencing higher income this year than next year, you can pay some expenses early to reduce your current tax liability. Things such as rent, bills, and subscriptions which allow you to pre-pay or make early payments.
Bring Forward Invoices
If you feel that your income for the following year will be higher than the current year, you can look into bringing forward some invoices so you can have them included in this year's financials rather than inflating next year's financials even more.
A Tool For Retirement
Because you can claim a tax deduction for certain contributions to your super fund, making extra contributions can be a win-win scenario by increasing your super balance and reducing your taxes at the same time. Making extra contributions to your super fund can be a very smart way to reduce your tax liability and set yourself up for the future. Depending on what you, your accountant, and a qualified financial planner discuss together, you can agree on an achievable sum to start regularly putting into your superannuation, or making a one off lump sum payment, which can help to improve your tax obligation. However, once the money is in super you can’t just take it out again if you get short (without meeting a condition of release anyway), so it is very important to seek personal professional advice before acting on this strategy.
[NOTE: nothing in this section should be considered personal financial advice, and is intended to highlight a tax planning strategy in general terms only. Before acting on any information you should seek personal professional advice from a qualified financial planner and your accountant]
A Long Term Approach
If it’s looking like you may make substantial income over the next few years, you may consider putting some of that income into tax-deferred accounts. It’s important to know your plans for the next few years when it comes to tax planning so your accountant can help you decide what the best long term solution will be for you. Then you can decide if it's best to pay tax on your increased income now or try putting it into tax-deferred accounts which may incur tax later on.
When Is A Good Time To Do My Tax Planning?
Anytime is better than no time at all, of course! With the beginning of the financial year, we can take a look back at the previous year and of course determine your tax obligations of that year, but then based on past events and how you expect your financial situation to look over the next 12 months, we can decide on some smart tax planning strategies for the year ahead. It’s then good to reassess this in six months' time to see how everything is tracking.
With a plan in place, you can move forward in your personal life or business knowing exactly where you are at, what expenses you have coming up, tax bills you need to plan for, and when is the right time to spend on claimable expenses.
It’s a relief when you can go through your year without the added stress of what your tax bill will be at the end of the year. With a good accountant and accurate forecasts, you should be able to almost determine what your tax liability will be by the end of the financial year, and then make decisions and take action to improve that even more, reducing your tax liability or maybe even increasing your return!
It’s crazy to think that anyone would pick up $10 off the footpath if they saw it sitting there, yet so many people don’t take the action to save themselves or make themselves money through strategic tax planning.
We understand that anything with the word ‘tax’ in it is off-putting for most people. But it’s what we do for a living, and it’s what we do well! It’s important to note that every single individual and business is unique when it comes to tax planning, so we can’t take a one size fits all approach, we must get to know you and/or your business, discuss your future plans, review the past financials, and then work together to find the best tax planning solution for you.
If you would like to organise a time to meet with one of our accountants and plan your tax for the 2020 financial year, get in touch with us today by giving us a call on 6424 4021. We can start working towards reducing your tax obligation and maybe even getting you a good return next year!
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