Tax planning is the study of finances from a tax perspective with a purpose of ensuring maximum tax efficiency. Through tax planning, all elements of the financial plan work together in the most tax-efficient manner possible. Tax planning is a crucial part of an individual investor’s financial plan. Subtraction of tax liability and maximizing the ability to contribute to retirement plans are important for success. Tax planning covers many considerations such as timing of income, size and purchases and planning for other expenditures as well.
Bring Forward Your Tax Deductions
A tax strategy that you can implement immediately involves maximising your tax deductions in respective financial year with the aim of reducing your taxable income. By bringing forward your tax deductions into the current financial year, you reduce your taxable income. Less income equals less tax.
Self-manage Your Superannuation
Superannuation is used by every individual as a way of saving for the retirement years. There is a concessional tax rate of 15% on superannuation earnings which is generally lower than the tax rate
for an employee or business owner.
Divert Income and Protect Your Assets
A trust is a structure used as part of a tax planning strategy that offers tax effectiveness and asset protection at the same time still providing flexibility.
Set Up a Company
A common tax planning strategy is to retain and reinvest income in a company, only drawing a dividend when the shareholder’s tax bracket equals 30% or less. Companies can be used as an efficient parking vehicle to defer personal income tax.
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