You are no doubt aware of the old adage “Nothing is certain but death and taxes”. While this seems like a stark statement, it does, in most cases, apply to any person generating an income. There is no escaping this legal obligation to pay tax but there is also no law against getting ‘tax smart’.
Tax planning is a proactive way of ensuring you minimise your tax liability for both your personal and business finances.
Supporting your financial plan with tax planning:
You should currently be working from your financial plan in order to meet your personal savings and retirement goals. Likewise for a business, you should have a plan in place detailing it’s financial goals.
Tax planning is the ideal companion to your financial planning as it analyses your financial situation from a tax perspective and determines how to achieve your financial goals in the most tax efficient method possible.
By making use of a tax consultant, you will be advised on many aspects of your personal financial plan such as:
- Structuring your retirement plan to be as tax efficient as possible
- What types of investments will reduce your tax liability
- Timing large purchases or expenses to minimise tax
Similarly, for businesses it can assist you in:
- What company type should you be trading as
- How to be most tax efficient when structuring employee remuneration, financing equipment purchases, etc.
- How to handle depreciation
- Utilising VAT wisely for smaller business
How tax planning can legally reduce your taxes:
It is important to mention that tax planning isn’t something you start when you file your tax return. It is very much a proactive process that should be started as soon as possible to ensure you benefit from the potential savings it can yield in the medium to long term.
There are a number of methods to reduce the tax you are liable for in your personal capacity. We touched on some of these in our 2011 article on tax planning. These include:
- Retirement contributions: There are tax benefits that apply to your annual retirement contributions. Using these wisely can save a significant amount of money in the long term.
- Donations: As a taxpayer, you are granted an annual amount that is free from donations tax. By using donations wisely, you can reduce your tax liability.
- Income Splitting: If your spouse is not earning a salary, there are legitimate means of splitting your income between your spouse and yourself, reducing your tax liability.
- Capital Gains tax exclusion
By making use of an experienced tax consultant, they will be able to look at your unique financial situation and advise you on how you can improve your tax efficiency.
Should you be interested in a consultation regarding Tax Planning and how it can save you money, contact Brett from Dirmeik Consulting on 021 421 4444.