Strategic tax planning is essential for small businesses looking to efficiently manage their finances and legally minimise tax liability. It involves proactively planning ahead to ensure you only pay the taxes you owe, and no more.
Working with your tax adviser, you can identify potential deductions, credits, exemptions, and strategies to optimise your tax position. This will not only optimise your cash flow but give you peace of mind, knowing that all of your tax obligations are under control.
How does tax planning benefit your business?
The main goal of tax planning is to reduce your business’s tax burden, while also ensuring you comply with all relevant tax laws. Here are five key benefits of strategic tax planning:
- Maximise After-Tax Profits: By leveraging tax incentives, deductions, and credits, you can lower your overall tax burden, which increases your business’s profitability.
- Improve Cash Flow: Tax planning frees up cash for your business by reducing tax payments, providing more liquidity and a better cash flow position.
- Stay Compliant and Reduce Risk: Proactive tax planning ensures your business meets all tax obligations, helping you avoid costly penalties and legal complications.
- Fuel Strategic Growth: Lowering your tax costs allows you to reinvest funds in growth initiatives, helping your business stay competitive and thrive.
- Gain a Competitive Edge: Efficient tax planning reduces operational costs, giving you an advantage in pricing, innovation, sales, and revenue generation.
As we approach the end of the financial year it is important to recognise that most tax management strategies require certain steps to be taken before 30 June. Here are a few things to be aware of where action can be taken to legitimately reduce tax:-
- expenses such as rent, accounting fees and a host of others can be paid in advance to bring forward the tax deductions associated with such expenses;
- review your accounts receivable and ensure that any amounts that cannot commercially be recovered are written off before 30 June;
- items of depreciable plant and equipment up to a cost of $20,000 can be claimed as an immediate tax deduction up to 30 June this year;
- if you use a discretionary trust to run your business and that business has been very successful you could consider setting up a company to be a beneficiary of the trust where income can be distributed and taxed at relatively low company rates, and where the company can be used to create additional wealth for future investment.
- maximising superannuation contributions can not only minimise tax but help boost your retirement income. The concessional contributions cap for the current financial year is $27,500, but any top up contributions must be paid and allocated to your member account by 30 June;
- where you have unused super contributions caps from previous years additional contributions over and above the normal limits can be made to catch up;
- if you employ people then any superannuation contributions payable under Superannuation Guarantee rules need to be paid before 30 June in order to claim a tax deduction;
As well as minimising tax, an appropriate tax planning review can identify matters that need to be attended to before the financial year to ensure compliance with tax laws. Examples are as follows:-
- if you use a discretionary trust to run your business or hold income producing assets then a decision as to how any income is to be allocated to beneficiaries needs to be documented and signed an appropriate manner by 30 June. Failure to do so will result in the trust paying tax on all of the income at maximum rates;
- if you intend to declare a dividend to company shareholders then director resolutions need to be documented and signed off before 30 June to be effective;
- if a company has made loans to shareholders or associates under the terms of a complying loan agreement you need to ensure that minimum repayments have been made before 30 June. Failure to do so can result in the minimum repayment amount being deemed to be a dividend and fully taxable to the shareholder;
How can we assist you with tax planning?
Partnering with an experienced adviser can enhance your tax planning strategy and support your business’s financial stability. We’ll guide you throughout the year, seeking opportunities to reduce your tax liability and maximize your deductions.
In the lead up to 30 June we work closely with all of our business clients to examine their business and personal tax affairs to make sure that as far as possible no more tax is being paid than is required, that all compliance obligations are taken care of, and that all affected parties are fully aware of how much is to be paid and when it will be due and payable.
For more information on how tax planning can benefit your business, feel free to reach out to us. Let’s discuss how we can work together to strengthen your business’s financial health through effective tax planning.
