It’s safe to say that individuals get disheartened and stressed out when dealing with taxes, but that shouldn’t be the case at all with proper tax planning.
With the vast changes in our economy, there’s no doubt that taxes have become even more complex and have affected our personal finances, businesses, investments, retirement funds, and more. But of course, there are ways to dodge these issues and minimise your taxes, but how do you do that?
When you’re a high-income earner, having a sensible tax strategy to minimise your payments is crucial. That’s why business leaders and successful individuals get assistance from reliable accounting firms to help create actionable strategies to implement tax minimisation.
Legal Tax Minimisation Strategies to Discuss With Your Accountant
· Maximise Allowable Tax Deductions
Tax deductions are allowable expenses that help reduce your taxable income. An effective long-term wealth creation strategy to maximise your voluntary superannuation contributions. Today, you can claim up to $25,000 as tax deduction annually. Tip: you need to allow for any superannuation guarantee that you may have also received through employment income.
Besides that, you should also consider having income protection insurance. This insurance secures your assets and lifestyle if you are not able to work for a given period. Not to mention, this insurance protection is also tax-deductible.
· Maximise Tax Offsets
Tax offsets are extremely helpful since they work as tax credits that help reduce the amount of tax you are due to pay. A common offset strategy is the Low Income Tax Offset and Low and Middle Income Tax Offset.
When you manage your taxable income and fully maximise your tax deductions or defer income to a future year, you can have tax offsets ranging up to $1,080, which will help reduce your tax liability.
· Reduce Capital Gains Tax Liability
With the help of a reliable accounting firm, you need to strategically time the sale of assets to take advantage of tax concessions. For example, if you’re selling a property, you need to note that CGT is payable within the year that you sign a contract, not when the settlement happens.
· Buy Assets in Your Partner’s Name
If your partner has a low marginal tax rate, you can buy assets under your partner’s name to avoid high tax fees. This way, the net income from the investment will be taxed at a much lower rate.
If your investment is negatively geared, the ownership of the asset may be more tax effective for higher-income earners. This is because you will get to set the amount of the negative gear to help reduce taxable income and tax liability.
· Salary Sacrificing Into Superannuation
Salary sacrificing and contributing to your super will allow you to forgo some of your pre-tax salary/wages since you’ll be putting them into your super instead. This is an effective strategy since super contributions are already taxed at the concessional rate of 15 per cent. Compared to a marginal tax rate, the tax you’ll pay is much lower, allowing you to save more on taxes. The amount you can sacrifice is subject to the allowable limit of $27,500 concessional contributions from all sources.
Tax Effective Business Structuring
Operating your business as a sole trader or partnership may not give you the best outcome for tax purposes. Alternative structures include discretionary trusts (family trusts) and companies. Depending on your type of business, a trust gives the opportunity to tax effectively distribute profits amongst family members which may give a lower overall tax outcome. Companies currently pay tax at the rate of 25% which is much lower than the highest marginal rate an individual pays – 45% plus 2% Medicare Levy.
The Bottom Line: Work With a Credible Accounting Firm to create an Effective Tax Strategy
Working with a reliable accounting firm can help you create efficient tax solutions to help reduce the amount of tax you need to pay as a high-income earner. With their help, they’ll evaluate your financial status and create a customised tax plan that’s fit for your needs and maximise different efforts to reduce the taxes you need to pay.
How Can We Help You?
Are you looking for a good accountant on the Sunshine Coast? If so, Wardle Partners Accountants & Advisors is here to help.
Celebrating 40 years of experience and fantastic service, we have become the leading business accountants and SMSF experts in Caloundra, Sunshine Coast. We cover business accounting, tax, self-managed superannuation, and bookkeeping while ensuring we get the best outcome for our clients. Learn more about our services today!
