Navigating taxes can seem overwhelming, leading many businesses to procrastinate until the last minute to address them, typically around June 30th. Initially, tax planning may not appear to offer significant advantages, but as your business expands, strategic tax planning throughout the year can yield substantial benefits.
This guide will demystify estimated tax payments, explore ways to optimise business expenses, and ensure compliance. Ultimately, why pay more taxes than necessary when you put in hard work daily?
Previously, we dissected what Tax Planning is in our article Tax Planning: A Strategic Guide To Paying Less And Keeping More. Today, we will delve deeper into practical Tax Planning examples.
Strategies That Save
Onto the real stuff – the strategies that can help your business thrive. Have you thought about deferring income until after June 30th, or bringing forward expenses before the curtain falls on the financial year? Here are some common strategies that save money:
- Pre-plan Your Expenses: Bring forward necessary expenses before June 30th to have more deductions and lower your taxable income by June 30th.
- Defer Your Payments: You may consider holding off on paying those invoices until after June 30th if you expect next year to have a higher income.
- Business Structure Choices: Is your business structure working for you? Review your structure to make sure you are not over-paying on your taxes.
- Be Asset-Savvy: There’s an instant asset write-off waiting, but why wait till the last minute?
- Pay Now, Save Later: Pre-paying super can be a win-win, minimising taxes and investing in your future.
If you are new to tax planning, have a read of this article which delves into some of the most common tax planning strategies: Get a Head Start on Your Tax Planning with these Easy Ideas.
Forward Planning & Estimated Tax Payments
Estimated tax payments may not be the most thrilling topic for business management, but grasping their significance can greatly impact your financial standing. As April approaches, insights into your tax responsibilities for the end of the financial year become clearer. While year-round planning is encouraged, now is the ideal time to consult a professional regarding any further actions required before the end of the financial year.
These strategies are not mere financial tactics; they are integral components of a well-devised tax plan. It is advisable to seek professional guidance to ensure that your approach aligns with your specific circumstances and remains compliant. Engaging in simple tasks such as pre-paying interest installments for the upcoming year can enhance cash flow for the next year and enable you to utilise tax offsets promptly.
Likewise, allocating pre-payments towards your superannuation serves not only as a means of saving for retirement but also as a strategy to reduce your upcoming tax liabilities.
Quick Case Study
Let’s explore the process of pre-paying super as part your of Tax Planning. Super contributions hold particular significance, especially for small business owners who are notorious for not paying themselves super, counting on the proceeds from selling their business for retirement funds.
Making super contributions not only looks after future-you, but also reduces your current taxable income. Superannuation plays a crucial role in a well-rounded wealth-building strategy. Consider John, earning $100K annually from his NDIS enterprise before taxes.
- John’s Income tax stands at $22,967
- John’s take-home pay amounts to $77,033
By pre-paying $10,000 into his super before June 30th, John can slash his taxable income from $100k to $90k.
- John’s Income tax then reduces to $19,717
- John’s take-home pay decreases to $70,283
- But he retains the $10,000 in his Super account until retirement, saving approximately $3,250 in tax (based on 2023 marginal tax rates).
These funds will accumulate interest for retirement and remain untaxed until that time.
Company Structure – More Exciting Than It Sounds
Choosing between a sole trader, partnership, or company impacts not just how much tax you pay, but how you pay it. Each structure has its advantages and disadvantages, so it’s important to choose wisely.
Sole traders are relatively simple in terms of tax planning – simply declare your income and deduct any eligible expenses. Partnerships, on the other hand, require an agreement between partners regarding how profits will be distributed before June 30th for effective tax planning.
Companies offer a variety of options when it comes to tax planning, such as paying yourself a salary or distributing dividends. It’s important to seek professional advice to ensure your chosen structure aligns with your business goals and tax strategy.
The Power of Tax Planning
Tax planning is crucial for NDIS registered businesses, aiming to maximise entitled deductions and legally minimise taxable income. It’s an ongoing process integrated into your business decisions year-round, not just a yearly task. Simple strategies like pre-paying expenses and maximising super contributions can reduce tax burdens and enhance financial well-being. Remember, you don’t have to navigate this alone. Having a knowledgeable ally by your side can help you make informed decisions, retain more earnings, and ensure compliance with tax regulations. Schedule a chat to discuss estimated tax payments and customise a tax plan for your NDIS registered business to avoid overpaying taxes.