When it comes to taxes, there are a lot of things that can go wrong if you’re not careful. The thing is, most people don’t even know where to start when it comes to reducing their tax liabilities.
Well, don’t worry, because we’re here to help. In this post, we’ll give you some tips on how to reduce your tax liabilities and get yourself back on track.
Are you one of the millions of people who dread tax time? Are you unsure of what deductions you can take and how to minimise your liabilities? Then, relax – we’ve got you covered.
This post will outline some simple tips to reduce your taxable income and make tax season a little less daunting. So read on, and get ready to file your taxes with ease!
As the end of the year approaches, many people are scrambling to take care of their tax liabilities. However, you can follow a few tips to reduce your tax bill and keep more money in your pocket.
This blog post will discuss some of the best ways to reduce your tax liability.Â
Tax Advice To Lower Liabilities
There are still a variety of steps that business owners can do to assist decrease their tax bills for the 2007 tax year, despite the fact that the end of the fiscal year is drawing ever closer.
In most cases, all that is required is to make sure that your objectives are appropriately recorded and dated, which will also be of assistance when it comes to presenting documents to an accountant or bookkeeper.
Make sure to pay all of your bills by the 30th of June if you want any tax deductions for this year.
If payments for liabilities are made on or before the 30th of June, business owners will be able to claim the tax deduction for applicable expenses this year rather than having to wait until the following year to do so.
For instance, although mandatory contributions to superannuation can be paid up until the 28th of July, any payments made after the 30th of June will not qualify for a tax deduction when filing the return for this year.
Evaluate Current Bonus Structures
Similarly, year-end bonuses to staff must be paid by June 30 in order to qualify as a deduction for this year. The only exception to this rule is if it is documented before June 30 that a bonus will be given to employees after that date, in accordance with the terms of their contract, without any additional requirements, and there is an objective formula for determining the amount of the bonus.
It is a good idea to evaluate the documentation for worker incentive arrangements in the event that certain payments cannot be delivered before the 30th of June.
This will guarantee that the necessary conditions for tax deductibility have been met.
If there is not a lot of documentation that already exists for the bonus arrangements, at least some basic documentation needs to be generated so that the tax deduction may be justified.
Write Off Bad Debts
A deduction known as “bad debt” can be claimed for any debts that are cancelled out of the books and records before the 30th of June each year.
This is especially helpful for companies that have had a successful trade year and will thus have a significant taxable profit, as well as for companies that have had a windfall profit this fiscal year, for example from the sale of an asset.
The owners of businesses need to make it a priority to clean up their financial records and check to see that they are not carrying forward any unreasonable debts.
Additionally, it is strongly suggested that any credit notes be issued and dated prior to the 30th of June. In this particular scenario, make sure you don’t fail to claim GST changes in BAS, which is something that companies sometimes overlook.
This indicates that if the GST was paid when the transaction was declared, the company has the right to claim back the GST when the debt is written off as bad. This is because the GST was paid when the sale was reported.
Discard Equipment That Has Outlived Its Usefulness
A similar tax deduction can be claimed for the reduced value of any fixed assets that are no longer useful; however, this deduction can only be made if the assets are actually written off in the fixed asset register on or before the 30th of June.
For instance, the value of a piece of machinery that has been upgraded and is no longer in use should be written down, and a deduction should be made for the loss on disposal of the asset.
Make Loan Repayments
Owners of businesses who have taken out loans from the company are required to ensure that the loans have been properly documented after taking out the loans.
Any payments made towards loans from prior years will automatically include the applicable interest amount.
Be aware that concessions may allow a loan taken out for the current year to be repaid in full prior to the due date of the company’s tax return without the imposition of interest charges in certain circumstances.
Capital Gains Tax (CGT) Planning
It is in your best interest to examine the organisational structure of the company to determine whether or not it enables you to derive the most possible advantages from the capital gains tax discounts applicable to small businesses in the event that the company is eventually sold.
These concessions have been made substantially easier to get over the past two years, and they are incredibly valuable due to the fact that they can lower or completely eliminate the tax that is owed on the future sale of a corporation.
Do not wait until the company is going to be sold to put the appropriate structure in place; if you do, it will most likely be too late. Now is the time to put the structure in place.
Maximise Superannuation Contributions
Before making any contributions that are not tax deductible, it is important to first review the current contribution limitations for superannuation and then make the maximum possible deductible contribution, which is now $50,000 or $100,000 if you are over the age of 50. Also, give some thought to the possibility of providing tax-deductible contributions for a spouse, either in the form of employer contributions or, if the conditions are met, by encouraging the spouse to make self-employed payments.
Make A Family Trust Election
Let’s say that the structure of the company includes a family trust that owns shares in the company that is actually running the business.
In this situation, it is normally essential for the trustee of the family trust to make a family trust election and to declare this information to the Australian Tax Office (ATO) on the trust’s tax return.Â
If the trustee fails to do so, the trust may be subject to further taxation. If the family trust election is not made, the trust will not be able to, in most cases, transmit franking credits on dividends paid through to its beneficiaries, which will result in an increase in those beneficiaries’ tax burden.
Look At Payroll Tax Registration
As a company expands, it is possible for its wages to approach and even surpass the required levels for registering for payroll tax.
As a result, if the threshold has been surpassed, the time has come to conduct an assessment of the situation and register for the current tax year as well as any subsequent tax years.
When discussing payroll taxes, the term “wages” typically refers to everything from contributions to retirement funds to augmented fringe benefits and even certain payments made to independent contractors.
The threshold is different in each of the states and territories; for example, in Victoria it is $550,000, but in the ACT and NT it is $1,250,000.
Be advised that registration is determined based on total Australian salaries, notwithstanding the fact that pro-rata adjustments are done in situations when an organisation has employees in two or more states or territories.
Make All Compulsory Superannuation Contributions
Even if it is important to comply with criteria for the superannuation guarantee on a quarterly basis, now is a good time to make sure that the company has completed its commitments.
When the ATO examines the records of a company, it will typically do so in the beginning on a foundation that is based on a financial year, with reference to the wages of the employees as recorded on their PAYG payment summaries.
There may be a need for further enquiry if there are discrepancies.
Identify And Report Fringe Benefits Tax
It is necessary to verify that employees’ PAYG payment summaries accurately reflect any reportable fringe benefits received by them.
This is in addition to paying the correct amount of fringe benefits tax (FBT), which is also required. In addition, prices have shifted in the past few years; therefore, you should double check that you have the most recent information.
Take Advantage of Salary Sacrificing
Employees have the option of reducing the amount of tax they must pay by sacrificing a portion of their salary.
If you want the benefit, you have to give up a portion of your pre-tax earnings before you get it. You may use this to pay for things like your retirement benefits, a new car, insurance, a computer, the rent or mortgage, or even your superannuation.
These advantages, which are often referred to as fringe benefits, have the potential to reduce your annual tax liability by thousands of dollars.
There are, of course, restrictions about the kinds of things that can have their salaries reduced or packed together. However, prospective Fringe Benefits Tax (FBT) may have an effect on the kinds of products that your place of employment is willing to provide to its employees.
One of the most well-liked choices is to include a car purchase in one’s wage package in the form of a novated lease. These three-way agreements between you, your employee, and the financer can provide you with access to a new car and lower the amount of revenue that is subject to taxation.
Consider including your super in your salary negotiation in order to boost the amount of money you receive at the conclusion of the fiscal year.
Control Your Debt
If they are not managed in an effective manner, debts of any kind can quickly snowball into major headaches.
Consolidate all of your debts into a single, more affordable payment so you can stay on top of everything.
For instance, if you owe money on mortgages, investment properties, or credit cards, you may be able to deduct some or all of the interest payments from the amount of income tax that you owe.
If it is adhered to, the debt repayment hierarchy will cut these costs more than anything else. However, you should always start by paying off the non-tax-deductible debt with the highest interest rate, and then work your way down the list.
Put In A Claim For Every Deduction
It is essential to have a solid understanding of the deductions that you are eligible to take. As soon as you get this information, you may begin to minimise the amount of your taxable income by claiming all permissible deductions related to your work.
The following are examples of some of these costs:
- Computer equipment
- Books and courses pertaining to a given technology or business
- Expenses incurred for the use of a vehicle and for travel, including board and lodging. There are, however, stringent guidelines that dictate what cannot be claimed.
- Home office overhead costs.
If you limit your tax deduction to the portion of an expense that is relevant to work, you may still be able to deduct personal expenses associated with the purchase. There are extra possibilities for you to lower your tax liability if you are the owner of a business or an investment in real estate.
It is important to be aware of the threshold for work-related claims in order to avoid being flagged by the tax department; if you are unsure of the level, you should seek counsel.
You need to be able to offer documentation for any claims that are worth more than $300 in order to be eligible for the financial prizes. If the amount is less than $300, you will be required to demonstrate how you calculated the claim but will not be required to produce written documentation to the tax department if they ask you about it.
Pre-Pay Deductions
Your deductions can be brought forward to this fiscal year if you pay for some expenses in advance. This will reduce the amount of your income that is subject to taxation, which will result in a greater bonus.
To qualify for the benefit, the total amount of prepaid expenses must be less than $1,000 or they must comply with the 12-month criterion.
You are permitted under this regulation to claim an instant deduction as a prepaid expenditure, provided that the service does not last more than 12 months and is completed within the next income year.
Give To The Needy
Donating money is an excellent strategy to reduce the amount of money that you have to pay in taxes if you are feeling generous.
Any contribution that is greater than two dollars can be deducted from your taxes. However, in order to claim it, the donation must have been made to a recognised charity.
Donations may not always have to be made in the form of monetary gifts either. Donations to charities, whether they be in the form of clothing, real estate, or household items, are eligible for a tax deduction and can assist in offsetting capital gains through portfolio balancing.
Keep in mind that your donations will not be deducted from the amount of your tax refund. Instead, the amount you claimed is deducted from your income that is subject to taxation, resulting in a percentage refund.
Take Advantage of Your Retirement Accounts to the Fullest Extent Possible
Contributing the utmost amount possible to their retirement accounts is one of the most prevalent tax-minimization tactics that high-income individuals adopt to reduce their tax liability.
The encouraging thing is that individuals of any economic level can utilise this strategy. That way, you can either put away the maximum amount possible in your retirement account or contribute some of your salary or bonus money and deduct it from your taxes.
You can maximise your refund by making use of the Medicare Levy Surcharge and your private health insurance.
Investigate getting private health insurance if you haven’t already done so if you don’t already have it.
Individuals who do not have their own private health insurance are subject to a higher Medicare levy premium. A required Medicare charge of 2% is paid by the vast majority of taxpayers.
On the other hand, if you do not have private health insurance and earn more than $90,000 (singles) or $180,000 (families), you will be required to pay an additional surcharge of at least 1% on top of your regular premiums.
Control When Your Tax Deductible Expenses Occur
If you know in advance that you will have significant tax-deductible expenses, you may be able to choose which fiscal year you buy the items in order to take advantage of the tax benefits. This is especially crucial to keep in mind if you are a sole proprietor and want to get the most out of your tax deductions right now.
For instance, if you have a significant expense that is tax-deductible and your income for that year is going to push you up to the next tax threshold, it may be in your best interest to make the purchase of the item right before the end of the tax year.
This is because your income will push you up to the next tax threshold.
This will result in a lesser amount of income that is subject to taxation for you during the given year, and depending on the circumstances, this may even place you in a lower tax rate.
On the other hand, if you take an unpaid leave of absence from work or take a break from working during the year and your income (and tax) is lower than usual, it may be in your best interest to postpone the purchase of larger tax-deductible items until a later time, when both your income and your tax will increase significantly (so you have more tax to save).
By doing this, you will be able to save more money and minimise the amount of tax that you pay on the higher income bracket.
One other approach to talk about this concept is as follows: If you need to purchase an expensive item related to your job late in the fiscal year (the fiscal year runs from July 1st to June 30th), you should make the purchase earlier in the fiscal year, when your income is expected to be higher. This helps to ensure that you receive the greatest possible benefit from your tax deduction (and your tax refunds).
Investments Affect Your Taxes
Depending on your personal finances and the specifics of your situation, making an investment may also assist you significantly lower the amount of tax you owe.
Having said that, this is not the case for everyone by any stretch of the imagination. Therefore, before you make the decision to invest, you should consult with your financial planner, who will be able to tell you whether or not an investment is appropriate for you.Â
Keep in mind that the investment should benefit you both now and in the future. There is no point in deferring a small amount of tax now if a poor investment ends up causing you to lose all of the money that you initially invested in the long term.
There May Be a Tax Saving Associated with Paying Off Your Mortgage
Because of the interest income that you make on savings, you are required by law to pay taxes on your savings, which means that if you are a diligent saver, you may be subject to a sizable tax liability at the end of each year.
When you buy your own house, you can put your savings towards paying off your mortgage, which is like killing two birds with one stone. In addition, you will no longer be subject to taxation on the money that was previously used to pay down your mortgage. In most cases, the overpayment can be retracted and used again if necessary in the event that you end up needing part of the money in the future.
Nevertheless, it is wonderful to watch the balance on your home loan become lower and lower, and this excitement may cause you to think twice before diving in.
You can still lower the amount of interest you have to pay on your mortgage by making use of an offset account, even if you need to save money that you have quick access to.
It is a smart move to consult with a financial counsellor in order to get assistance in preparing the most suitable mortgage and personal finance management for your unique set of life circumstances.
Make The Necessary Adjustments To Your Finances With Your Partner
It is feasible to change your finances between you and a partner in order to optimise the way in which your taxes are calculated if you have a partner.
For example, if both partners in a couple have savings in a short-term account that is earning some interest, it may be beneficial to invest that money in the name of the lower-income earner because that person will pay the least amount of tax on the interest that is earned on the savings.
If both partners in a couple have savings in a long-term account that is earning some interest. Your financial advisor, on the other hand, can assist you in making the most of this opportunity.
Assets Being Sold? Concentrate On The Details
Have you made plans to sell a property that would result in a capital gain that will be taxable? A rental property or a residence that has ever been rented out is one of the most typical examples (including airbnb).
If you sell an asset that results in a capital gains tax, there are a few things you should think about.
Since when have you been the owner of the asset? If you have owned the asset for more than a year, you can be eligible to receive a discount on your capital gains of up to fifty percent. If you have not owned the asset for at least a year before selling it, you will be required to pay a higher capital gains tax.
Does it change from month to month? If this is the case, you may decide to sell the asset in a year in which you anticipate earning a lesser income, as the amount of your capital gain will not have as significant of an effect on your overall tax bill in that year.
Because of the potential complexities involved, it is highly recommended that you seek the assistance of a tax professional while navigating the tax implications of selling assets.
Determine Your Debt Level
The most important stage for a lot of folks is to figure out how much total debt they are carrying, which is frequently the first step. It is critical to your ability to solve the problem that you are aware of the exact amount of money that is owed to you.
In order to tally up your financial obligations, you will need to obtain the most recent statements from each of your creditors (e.g. bank, mortgage provider, store cards, etc).
In the event that you are uncertain about the terminology, financial advisors are able to assist you in comprehending how to read these statements.
Create A Budget
Establishing and sticking to a budget is an effective method that can empower you to take care of your financial destiny. It assists in the management of your finances so that you can pay for the necessities while still having enough money left over to save.
It can assist you in comprehending where your money goes, what you are able to afford, and in ensuring that your financial obligations are met.
It is possible that having this peace of mind will allow you to better handle unanticipated costs.
For instance, if you are able to locate additional funds within your budget, you may be able to make additional payments towards the elimination of your mortgage, credit card, or other obligations.
You can start and maintain a budget with the assistance of a number of different budgeting tools and applications that are accessible to you. One such application is the budget planner offered by ASIC.
Recognise Interest Rates
There is a wide variety of interest rates accessible to choose from, regardless of whether they are tied to your credit card, personal loan, or mortgage.
It is crucial to have a solid understanding of the inner workings of these interest rates in order to have a solid understanding of how much your future repayments will be and whether or not you will be able to afford them if they increase.Â
When thinking about getting a loan, you also have a number of options available to you, such as choosing between fixed and variable interest rates, transferring balances, and going into overdraft.
When there are so many different phrases, it can be difficult to keep track of what each one means.
It is in your best advantage to compare the terms offered by a number of different lenders before making a final decision. Even seemingly insignificant variations in interest rates can result in significant financial losses over the course of an investment’s term.
When looking around for alternative providers, using comparison websites can be helpful. However, when using these websites, it is important to keep in mind that there are some limitations. For instance, not all websites will show you all of the lenders that are available, and some may prioritise showing you sponsored results above others when displaying search results.
