Tax season is definitely a busy time for many professionals and business owners. Being overwhelmed to get everything together for the accountant is not something new to the ears.
With a little tax planning, business owners and professionals can reduce tax expenses and the burden of having unbudgeted tax debt. Knowing how to do this properly helps you maximise your hard-earned income.
Tax planning explained
Tax planning varies for each organisation or individuals. There are different rules that apply to your specific circumstance.
When doing tax planning, your tax minimisation schemes should be within the intent of the law. Schemes that are outside the spirit of the law are considered tax avoidance schemes or arrangements.
Generally, there are different types of tax planning to consider. As a start, let us focus on these two types:
| Short-range | Long- Range |
| – Done annually – Helps your business meet annual ATO obligations – Contains opportunities which may vary each year | – Used for a longer time period – More complex financial goals – Presents more specific objectives |
Benefits of tax planning
You can fully maximise the benefits of tax planning when you adopt an excellent tax strategy. Of course, having a reliable accountant will help you understand the complexities and strategies in taxation.
The significant benefits of tax planning include:
- Lower tax rate
- Reduced taxable income
- Flexible tax payment
- Tax credits
How to reduce taxable income
The ways to reduce your taxable income may depend on your personal circumstances. Some of the most common ways are:
- Occupancy expenses for home-based business
If you are operating your business from your home, there are possible tax deductions you may claim such as electricity and phone.
NOTE: You may only claim occupancy expenses based on the area used in your home for your business.
- Travel expenses
You may claim deductions for business-related travel expenses to reduce your taxable income. Some of these may include:
- Airfare
- Train, tram, bus, taxi, or ride share fares
- Car hire fees
- Fuel, tolls, and car parking
- Accommodation
- Meals (for overnight business travel)
It is best to seek advise from your accountant regarding your travel expenses.
- Add to your super contributions
Super contributions are taxed at the concessional rate of 15%, which is lower than the personal income tax rate.
Putting some of your pre-tax salary/wages into your super does not only reduces your taxable income. Adding to your super contributions can also be a great long-term wealth creation strategy.
- Donate to charities
You can claim a tax deduction when you donate cash or property that is donated to a deductible gifts recipient (DGR). Keep in mind that the amount of the monetary gift is reduced from the total taxable income. Donations do not come back through a tax refund.
Ready for the tax season?
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