Proper tax management is essential for both individuals and businesses. For Australian residents, tax management is even more important because of the ever-changing regulations of the Australian Taxation Office. You have to ensure compliance to avoid legal penalties and maximize cash flow. For effective tax management, you need to follow the following strategies.
Understand Tax Rules
To save yourself from legal consequences and file your income tax properly, you need to understand the basic tax rules of the country you are living in. For Australian people, you need to pay tax on your worldwide income if you are a resident, but for non-residents, you are only taxed on Australian-sourced income.
How much tax you have to pay also depends on your income bracket. There are also different kinds of taxes, like GST, CGT, and other medical and work-related taxes. If you are a busy professional and keeping track of all these details seems difficult, you can rely on SMSF accountancy for effective tax management. Once you understand basic taxation rules, you can decide on proper strategies on how to minimize your income tax without getting into legal trouble.
Maximizing Tax Deductions
You can reduce your taxable income by maximizing your work-related expenses, and you claim these deductions and benefits during tax filing. You need to keep track of all your office expenses, including receipts for things like mobile phone, car expenses, union fees, and home office expenses. You can then claim these deductions to reduce the amount you have to pay in yearly income tax.
Business Structure Optimization
If your business is growing, there is an increased opportunity for saving money on taxes. You can shift from operating as a sole trader to a structured business. Entity choice determines the tax rates applied to the eventual profit. You can involve family by distributing income to beneficiaries who fall in a lower tax bracket. This is a highly effective strategy to legitimately reduce the income tax of your business. You can then put this saved money into reinvestment. So strategic tax planning can also help your business grow in this way.
Investment and Capital Gain
Evaluating and selling your asset at the right time can also help you save on tax. Holding your asset for more than 12 months can help you get tax discounts in Australia. By holding your shares and property, you can get up to 50% CGT discount.
If your retirement is near, and you are expected to fall under the lower tax bracket, you can consider delaying the sale of your asset. Consider selling underperforming assets, as they can hamper income flow in the long run.
Conclusion
Income tax can take a significant amount of your earnings if you don’t plan strategically. Effective planning starts with a thorough understanding of the law. Get to know basic legal tax frameworks and then use strategies like maximizing tax deductions, business structure optimization, investment, and capital gain. Such strategies can help you stay compliant with the tax laws of your country while also maximizing your income.