What Is Tax Planning And Its Objectives?
What Are Tax Planning Objectives?
Tax time is fast approaching, and for businesses, this can be daunting for many reasons.
Taxes make up some of the biggest expenses for businesses, so understandably, tax time can be very overwhelming. And for those who are less financially attuned, all the numbers and legalese can seem frightening. There are so many rules and regulations which can be difficult to navigate for those who are less clued in.
The good news is, setting tax planning objectives can be a great way to settle those feelings of dread as the financial year comes to a close.
We’re going to explore how tax planning strategies can help your business reduce costs this tax time.
Firstly, what is tax planning?
Put simply, tax planning allows businesses to reduce costs and increase deductions at tax time. Tax planning also helps businesses stay organised all year round so that they’re prepared at the end of the financial year.
Businesses that don’t have a tax planning strategy may end up paying more tax than they need to, so it’s important for businesses to implement a solid plan so they can save as much as they can.
Tax planning can be implemented year round. If you’re being smart about tracking your purchases throughout the year, you’ll be able to save money and get the most benefits during tax time.
What are tax planning objectives?
The main objective of tax planning is to reduce your tax bill while remaining compliant. Setting your own tax goals and objectives with an accountant will help you ensure that you comply with financial legislation (which is essential!).
According to the ATO, tax planning is only legitimate if it’s done legally, and tax minimisation schemes that don’t comply with the law are taken very seriously. The ATO is extremely strict when it comes to tax avoidance schemes that involve the deliberate exploitation of our tax and superannuation systems.
So, it's important that businesses stay up to date with legislation, and constantly monitor their tax planning strategies. It’s also a good idea to enlist professional help when it comes to devising a tax planning strategy, as this will ensure that all schemes are within legal guidelines.
Tax planning strategies for sole traders and small businesses
Tax planning helps businesses and sole traders save and spend more wisely. In other words, it helps us make decisions that will pay off at tax time. Businesses and sole traders utilise tax planning strategies and set tax planning objectives so that they can reduce tax liability and business costs. These initiatives also help businesses reduce income tax, increase tax reductions and access tax credits or rebates if they’re available, which again means that they’re paying less at tax time. This is beneficial, as according to the ATO, businesses who are operating within legal guidelines are able to accept any deductions available to them.
For example, if you run a small business, tax deductions may include travel fares, including airfares, public transport fees and taxis. And if you run that business from home, deductions can even include portions of your energy bill or mortgage.
Tax planning also helps businesses come up with long term plans to manage their taxes which can help reduce costs in the future. So, tax planning is important for businesses and sole traders as it allows them to plan ahead and receive more benefits and lower costs during tax time.
What kinds of businesses do tax planning?
All businesses! Every business should have a tax planning strategy and be setting tax planning objectives. Ultimately, the service pays for itself and will help business owners manage their tax bill at the EOFY (End Of Financial Year).
How much does tax planning cost?
If you do it yourself, tax planning is cost free. In fact, tax planning will decrease your overall business costs, as it helps you save money at tax time. You can also pay an accountant to help you with your tax planning strategy, and this price may vary. However, if you do pay for help, it’s tax deductible.
What are tax planning strategies
Here are some tax planning strategies to help you out this tax period.
Plan your payment dates
Make sure to plan your payment dates, as if you miss a tax payment, you’ll be fined. Schedule in tax payments and budget for them so that when tax time comes, you’ll be able to sort out your finances without any hassle.
Increase tax deductions
Through smart tax planning, you’ll be able to increase your tax deductions. For example, if your business needs to buy some more equipment, instead of buying it in July, buy it in June. By bringing forward payments, you’ll be able to obtain this year's tax deductions.
Defer your income
If you’ve worked out that you’ll have a big tax bill this financial year, but not next financial year, it may be smart to defer your income. You can do this by slowing down sales, delaying invoices, or anything that will prevent you from pushing yourself into the next tax bracket.
Prepay your expenses
If you’ve worked out that you’ll have a higher income this year than next year, a good tax planning strategy is to prepay your expenses. Prepaid expenses can be deducted in the current tax year, so it’s a good way to save on taxes.
If you run a business and are yet to consider tax planning, now is a great time to start. Implementing a tax planning strategy will help you save money, increase deductions, and keep your finances organized.
Need help? Find out if one of our business consultants can assist by contacting us now.
Disclaimer: The details of this article are for general purposes only. It’s recommended that you speak to a general tax professional for personalized accounting advice.