Tips To Reduce Your Tax Bills

Often we depend on our lawyers about dealing with tax manangement, but if we learn some basics of tax, tax rates and other related terms, we can better undersand the system.

There are many ways of reducing your tax bill but the strategies that will work will depend on your personal tax profile. Here are just some tax tips you may want to think about.

TIPS to reduce your tax bills:

- Individual tax rates for the new year are likely to decrease as a result of the recent Federal Budget. Therefore, by delaying assessable income or bringing forward allowable deductions, a permanent advantage can be obtained as income will be taxed at a lower rate going forward. There are certain ways of reducing your assessable income. One way is to derive capital gains rather than income gains. Capital gains are generally only taxed at half your marginal rate provided certain conditions are met. Additionally, one way of bringing forward your deductions is to prepay lease, interest and insurance premiums etc. These expenses can be claimed in the current income year provided the service period is < 12 months and the service will be completed in the next income year.

- Further, if you have prior year losses or capital losses, you should consider taking advantage of them in the current year as the actual benefit of the losses will decrease with the reduction in individual tax rates in the future.

- Consider salary sacrificing arrangements with your employer. In a salary sacrifice arrangement, the employment benefit is purchased with pre-tax dollars. You may salary sacrifice a range of items including superannuation (up to the age based limit) or a mobile phone or computer (not subject to Fringe Benefits Tax). Motor Vehicles are subject to Fringe Benefits Tax, but the amount is reduced,depending on kilometres travelled.

- Consider debt funding your income producing investments. You should always obtain financial advice before undertaking any borrowings.

- If you carry on all or part of your employment activities from home, then some portion of the home expenses can be deducted. Where you set up your home as a place of business, deductions can be claimed on the following items of expenditure - interest, rent, insurance, council rates, heating, lighting, depreciation, insurance, repairs, cleaning, pest control, maintenance and telephone calls.

- Consider the government’s superannuation co-contribution scheme. The government will match your superannuation contributions on a dollar for dollar basis provided you meet certain criteria.

- Consider transferring your income producing assets to your low income spouse or employ your non-working spouse as an employee of your business.

- Consider setting up a discretionary trust or partnership where income from the trust or partnership can be distributed to/split between certain beneficiaries/partners at the trustee/partner’s discretion.

Note:
Before entering into any of the above strategies, it is necessary to obtain professional advice specific to your individual circumstances. You should also consider the practical commercial implications (such as stamp duty and regulatory requirements) of entering into any strategy. A strategy should only be entered into if it makes commercial sense and not only for tax purposes.

Source:
Parratax