Tax planning is the strategy to minimise the amount of tax you owe on your income, assets, and wealth. Having the right strategy enables you to successfully handle your tax liabilities by making use of tax credits and deductions that are available to you. Tax planning is not tax avoidance; which is the illegal practice of not reporting income in order to not pay taxes. Tax planning is making sure you are not paying more tax then you are obligated to.
What is the importance of tax planning?
There are many reasons to consider tax planning as an integral part of your overall business cashflow and financial plan. These can include saving money, preventing the overpayment of taxes, seeing your return on investment and enabling future financial growth. Although not a one-size-fits-all approach, the ultimate goal is to reduce your taxable income to minimise the tax that you need to pay and to maximise the amount of money you have in your pocket.
Who needs tax planning?
- Tax planning for individuals gives you the power to take charge of your financial situation by making intelligent decisions to avoid unnecessary debt. Usually individuals with investment assets or who have received a lump-sum during the financial year will consider tax planning strategies.
- For businesses, tax planning is a technique to ensure that the company is in the best possible position to make future decisions. Having a long-term plan to both lower your taxes and maintain commercial efficiency is a winning combination.
Here are some quick and easy strategies to help both businesses and individuals to plan for tax time. It’s best to chat to your Accountant or Financial Planner now to find out what other tax incentives are applicable to your personal circumstances.
1. Plan your cash flow
The ebb and flow of cash flow is a common challenge for many businesses, as bills have to be paid on time while employees are compensated and accounts receivables come in. Unfortunately, these large tax payments can take away from the resources needed elsewhere in both business operations and personal finances. By proactively forecasting your cash flow needs and planning out when taxes need to be paid, you’ll be able to sidestep any unexpected expenses or lack of funds.
2. Plan for payment dates
It’s important to remember that missing tax payments can cause serious issues, like fines and end up straining your cash flow. By carefully planning for your tax payments, you can avoid these unnecessary expenses. Scheduling ahead of time and budgeting well in advance, not only reduces anxiety but positions you for continuing success.
3. Pay Superannuation Liabilities
To minimise your tax bill, consider using your superannuation as a tax strategy. By making an early payment on your superannuation liabilities, you’ll be able to get the deduction a year earlier. This future projection gives you greater flexibility with both your budget and cash flow.
4. Bring Forward Other Expenses
Tax planning doesn’t have to be complicated. Like other strategies, you can reduce your current tax obligations by bringing forward other expenses. This way, you will get a deduction this year that would otherwise not be available until next year.
5. Be prepared for your tax instalments
By putting money aside every week or month, even in a secondary account so that when that tax bill comes in, you have the funds ready to cover your tax obligations. This strategy helps smooth out any rough patches with your cash flow that was not yours from earlier throughout the year and puts control back into your hands.
6. Make Additional Superannuation Contributions
As an individual, if you can afford to make additional superannuation contributions, this is a great strategy for reducing your taxes at the same time. With some minor adjustments, you’ll find that it’s easy to afford additional super contributions. You may miss the extra money at first, but as time progresses and your superannuation balance continues to rise, you won’t regret making this decision!
Taking charge of your finances and setting yourself up for success requires an annual tax planning meeting. This does not need to be hard; however, it should involve a balanced approach that evaluates your overall tax strategy in order to make the most of every dollar saved on taxes.
Click here to book an appointment with Amanda to find out more about tax planning.
This blog post is intended for informational and educational purposes only. The information provided in this blog post should not be taken as professional accounting advice or recommendations.
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