The sooner you start looking at your tax situation and taking positive steps towards minimising your tax liability, the better. Tax planning is something you should start to consider at the start of the financial year, but whatever time of year you start taking a proactive interest in your tax situation, the aim should be the same: you want to minimise your tax obligations.
You have an opportunity to put yourself in a better financial position tomorrow by making the right choices today. With that in mind, here are some tips you can consider to help maximise your returns.
Tax Planning Tips to Boost Your Returns
Tip #1: Restructure your business structure
There are some situation that you might need to restructure your current business structure which may not be able to accommodate the growth of your business. You might use a corporate structure to run your business, so you can retain a profit in a company to pay company tax rate. In other words, you may defer a potential higher tax to a later year or pay lower tax in later year when dividends are to be paid in that year.
Tip #2: Add Your Financial Year’s Profit and Losses
When you start to look at your tax situation, think about your income and expenditure for the previous year and how it may have affected your taxable income for the year. When you file your tax return, you’ll need to include these amounts and any allowances you qualify for.
Profit and losses, if any, are also a factor and will determine how much tax you pay. Whether you are in the red or the green each year, you can reduce your tax liability by offsetting your losses from previous years with your profit. The more losses you can offset with profits, the less tax you will have to pay.
Tip #3: Make the Most of Superannuation Contributions
Looking at your tax situation can also give you the chance to work out if you’re taking enough allowances for deductible superannuation contributions. Under the tax law, once you reach a certain age or pass the income threshold, you can no longer contribute deductible superannuation.
In order to make the most of these, you need to work out how much you can contribute. If you can’t afford to contribute as much as you’d like to, look at where you can minimise your tax obligations. The more you can take, the more tax savings you can make.
Tip #4: Make Year-End Charitable Donations
Finally, you have a chance to make the most of your tax refund by making year-end charitable donations. You can donate these to a charity or organisation of your choice and claim the tax deduction.
The Bottom Line: The Importance of Tax Planning When Maximising Returns
While tax planning might be something you dismiss, think of it as an investment in your financial health and your future.
Look at your situation, review your tax returns and figure out how you can put yourself in a better position. Taking action to reduce your tax liability will leave you with more money in your pocket, which can then be invested to earn you higher returns.
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