It is often said that "failing to plan is planning to fail." Amongst accountants that offer tax services, it is a code to live by. Tax preparation is one of the three strategies available to taxpayers to reduce their tax burden. Tax evasion and tax avoidance are the other two strategies. The former will get you locked up the moment you are caught, while the latter . . . well, can you avoid tax really? Not really.
This leaves tax planning as the only sure method of reducing your tax liability. It involves reducing your taxable income by whatever legal means possible. Some of the most common strategies pushed by tax accountants include, acceleration of planned expenditure, income deferment and increasing allowable deductions.
Here are some common tax planning strategies to reduce your taxable income;
Contributing to a Superannuation Fund
The superannuation fund comprises a legally accepted tax deductible. If the tax you pay is particularly significant, you can increase your contribution to the fund. The move will effectively reduce your taxable income. In the taxable period before 2017, these deductions had to be made by your employer. The recent budget, however, came with a new set of rules, one of them being the ability to make these contributions yourself.
As of the 2017 financial year, there were caps as to how much you can contribute to your fund. Exceeding these limits attracts some serious fines. The caps are based on age and are as follows.
Get Private Healthcare Insurance
A private health plan will mean you don't need to pay the 'Medicare Levy' surcharge. You will still be required to pay the Medicare Levy, however. For further clarity, there are two Medicare charges pegged to your tax.
Medicare Levy – 2% of taxable income payable by everyone earning over $27,000 p.a.
Medicare Levy Surcharge – extra 1% - 1.5% of taxable income dependent on income.
Getting private insurance would help you avoid the latter costs. For high earners, shifting to private insurance will often be at a lower cost compared to the Medicare Surcharge. As every coin saved is worthwhile, the above is a tax planning move that's worth considering.
If you can postpone some earnings until the tax duration ends, you would have postponed tax for another 12 months. If your cash flow situation can allow it, look to defer some invoices until 1st July and onwards. If you also have some deposits, bonds or treasury bills, be advised to arrange for interest-paying periods to be after 30th June instead of just prior.
All in all, the above are just some of the tax preparation moves to help you save some of your dollars from the taxman. Be always advised to seek tax services from a professional accountant. Tax is an extremely complex and ever-evolving field. You will, thus, benefit from such a professional by being up to date with all these changes.