Whether you are an investor running your own business or an employee, planning ahead can make all the difference to your cash flow, profitability and growth plans. This is particularly relevant when considering your tax affairs. All too often we see people who have failed to prepare and structure their affairs adequately, bearing the consequences of paying too much tax and cash flow disruptions. Here’s a look at why tax planning is a critical part of a successful financial strategy, what’s involved, and some of the great outcomes it can bring you.
Why is Tax Planning Important for You?
Tax planning is an essential part of managing your finances. The goal is to legally minimise your tax liabilities to deliver significant savings, identify cash flow benefits, ensure compliance, provide a platform for business growth, and give you certainty & confidence in your tax position.
A critical part of tax planning is timing. Given the lead up to the end of each financial year is a busy time, effective tax planning takes place well before the end of the financial year. A few months may be required to build a strategy that is optimal for you, especially as it may include researching available grants, analysing your current financial position and forecasting the impact of suggested tax planning strategies.
What’s Involved in Tax Planning?
Tax planning analyses your financial situation and identifies opportunities to organise your affairs in the most tax effective manner available. Where it differs from tax avoidance or evasion is in its intent. Not only is tax planning a perfectly legal and ethical practice, it’s a no-brainer for people looking to reduce costs and grow their business or wealth.
Your advisor will review your expected income for the financial year and estimate any tax liabilities before any tax planning strategies are reviewed. Upon completion of such review, various tax planning initiatives will be presented to you, which may include things you can implement within your business, deductions, Government grants, and tax credits you could take advantage of, as well as wealth creation strategies available to you that minimise your tax obligations.
Once your optimal solutions are agreed, your advisor will guide you through the implementation process so that you can reap the rewards at tax time.
What can Tax Planning do for You?
Cash Flow Certainty: Getting hit with an unexpected or large tax bill can be a huge blow and strain on your cashflow. An effective tax planning strategy shines a light on your obligations for the financial year and may include things like regular instalment payments to give you certainty and confidence in your cash flow.
Tax Legislation Compliance: Good tax planning ensures that your business is compliant with all applicable tax laws and regulations, even when they are being used to minimise a business’ liabilities. This can help avoid the imposition of penalties and fines, now and in the future.
Improve Profitability: Effective tax planning reduces the amount of money you spend lining the ATO’s pockets, leaving more in your own! This can free up cash to reinvest in your business or investments and fund your growth or wealth strategy.
Inform Strategic Decisions: Knowing what your tax liabilities are likely to be can help you make better decisions for your business. Imagine the power of knowing ahead of time the tax outcomes of different solutions you might be considering.
Tax planning is an essential part of your overall financial and/or business strategy. With it, you can reduce your tax liabilities, improve cash flow, ensure compliance with tax legislation, and avoid any nasty tax-related surprises.
Our best advice – start now! It is no coincidence that we’ve prepared this article several months out from tax time – getting on top of tax planning and implementing a strategy can take time, so don’t wait until 30 June is looming before engaging your advisor for their tax planning services.
Get in touch with our accounting and business advisory team today to get your tax planning underway. You can call us on +61 2 9093 1311 or visit our website for more information.