Benjamin Franklin once said that taxes and death are the only two certainties in life. If we cannot plan our death, then surely we can plan our taxes better. And with the arrival of the federal budget in a month’s time and the end of financial year fast approaching, now is the perfect time to start your tax planning.
Whilst many of us struggle to find time to get enough sleep let alone fitting in time to speak to our tax advisors (let’s face it, tax is a tedious topic for some), tax planning remains one of the most important tasks all individuals should take control of and here are the top three reasons why:
1. Tax Savings
It is possible to manage income more effectively through the understanding of income recognition rules. Some income can be deferred or brought forward depending on whether or not you or your business is recognising income on receipt or on invoice date. Similarly, if your business has had a bumper year, you may prepay allowable expenses, such as rent and interest, for up to 12 months. This will bring forward deductions for the upcoming financial year.
Whilst the second Tuesday (due to the possibility of double dissolution election) in May isn’t the most exciting night for many, there are often changes in available deductions and tax offsets that applies from budget night that provides many business owners with an opportunity to benefit by acting before 30 June. With the talk of superannuation changes in the next budget, it may also be prudent to act before budget night. Salary sacrifice arrangements remain one of the most effective tax planning tools as there can be significant savings to be had.
2. Cash Flow
Let’s face it, most of us face time poverty but while you are focused on the day-to-day running of your business and work, you still need to find time to future-plan. Without proper tax planning, you may be in for a nasty surprise such as facing a rather unexpected tax bill after the financial year and leaving you with difficulties in managing business and personal cash flow to meet your tax obligations.
Effective tax planning, along with careful budgeting, will help you keep more of your hard earned dollars and assist you with understanding how much money is needed for tax payments, therefore leaving no surprises in the bag.
3. Family Security & Standard of Living
Providing for your family’s financial security and maintenance of your standard of living is also part of the tax planning process. Having the right insurance policy in place can provide a peace of mind for you and your loved ones. For instance, if you are the main bread winner, you can make sure there is enough insurance coverage to replace any lost income if you become unable to work.
Some of the biggest savings associated with tax planning can come from simple strategies such as salary sacrificing into superannuation. And with effective tax planning strategies, you have more money to save or invest or possibly both.
Tax planning is all about taking control of your taxes and minimising tax payments as throughout our lifetime, taxes are the single largest recurring expense that most of us will have. Australia’s tax legislation is complicated, so talk with your Accru advisors about your tax planning needs to clarify and improve your particular tax situation.