5 strategies for effective tax planning in 2024
Tax planning is an integral part of running a small or medium-sized business, and individuals alike. Good tax planning allows you to minimise taxes, avoid penalties, and make the most of your hard-earned money. As the end of the financial year approaches in Australia, it’s crucial to implement effective strategies to reduce your overall tax burden. In this blog, we will explore key tax planning tips for 2024 – Let’s get started.
How to reduce your taxes with tax planning
Tax planning is about finding legitimate ways to save on taxes without resorting to illegal practices. A business tax planning professional can provide smart strategies to reduce your payable tax amount. These strategies can include analysing your business structure, your expenditure and profit estimations, taking advantage of any ATO or government tax deductions as well as budgeting for any pending tax liabilities.
5 Examples Of Tax Planning Strategies
Here are a few potential tax planning strategies that apply in Australia.
Manage your accounts receivable
Review your debtors or accounts receivable. If you have unrecoverable debts, such as when a debtor goes bankrupt, consider writing off the amount as a bad debt before the financial year ends.
Time your purchases
Timing your purchases is a simple yet effective tax planning strategy. Prepaying expenses that you would have incurred in the following month (July) allows you to reduce your overall taxable income for the current financial year. Just make sure you have the cash flow to get your through.
Maximise superannuation contributions
Superannuation contributions offer a tax-effective way to save for retirement. Contributions made from your pre-tax income are taxed at a lower rate than regular income. By maximising your superannuation contributions, you can reduce your taxable income, potentially lowering your overall tax bill.
It is essential to consider both concessional and non-concessional contributions and their potential tax benefits. from 1 July 2024, the concessional contribution cap will increase from $27,500 to $30,000. Similarly, the non-concessional contribution cap will increase from $110,000 to $120,000.
Unused concessional contributions from previous years can be carried forward if eligibility requirements are met. Leveraging these carry forward contributions can help build wealth within your superannuation fund while reducing your taxable income for the financial year.
This is a great tax planning strategy to ‘supercharge your SMSF”, if you have one.
Division 7A
Division 7A debit loan rules can have significant tax implications, including extending to trust structures with company beneficiaries. Reviewing profit drawings, quantifying inter-entity loans, and meeting minimum principal and interest repayments on existing loans before year-end are vital steps in managing Division 7A exposure. Failing to comply with these rules can result in adverse tax consequences.
Trusts
It’s important to address the requirements related to trust income distribution before 30 June. Failing to do so can trigger default beneficiary clauses, potentially leading to unintended profit distributions or even subjecting the trustee to taxation at the highest marginal tax rate on the entire assessable income of the Trust.
Engaging in trust tax planning activities can help ensure that distribution minutes and resolutions are completed accurately, aligning with your intended distribution strategy and desired tax outcomes for your family group.
For more tax saving tips download our free guide 17 Ways to Minimise Business Tax.
Tax Planning Professionals
Tax planning is useful for both businesses and individuals in Australia. You can minimise your taxes, ensure compliance, protect your financial goals, and achieve greater peace of mind.
Take a look at our tax planning services for businesses and here for individuals, or contact us today for more information.
FAQs
Why work with an accountant for tax planning?
A tax accountant can help you identify legitimate tax saving opportunities, steer you clear of tax avoidance schemes and keep you compliant with the ATO.
What do I need to do before end of tax year?
Before the end of the tax year in Australia (June 30th), you should organise your financial records, review deductions and expenses, maximise superannuation contributions, assess capital gains and losses, check eligibility for government incentives, and consult with a tax professional if needed.
What is the financial year for taxes?
The financial year in Australia starts on July 1st and ends on June 30th of the following year.
Can you move income from one year to another?
In Australia, you generally cannot move income from one financial year to another for tax purposes. Income is taxed in the year it is earned or received. However, there may be specific circumstances or provisions that allow for certain types of income to be deferred or carried forward, such as income from some investments or business activities.
