How Tax Minimization Strategies Influence Tax Planning for Your Business?

by Stuart Iles Partners Tax Consulting

Tax minimization strategies act as a saviour, helping you to pay the exact tax amount. You can create better tax planning under the guidance of tax accountants and consultants.

Every business owner operating in Hobart have to legally and sensibly implement tax minimization strategies to frame tax planning. With the assistance of specialist tax accountants and consultants, it becomes possible to handle the steps properly. Paying more tax makes the business operations tough, thus it is mandatory to pay only the obliged amount.

On the other hand, tax avoidance is absolutely illegal and at the earliest, it will attract heavy penalties levied by the Australian Tax Office (ATO). Now, these penalties include heavy fines and even imprisonments for higher serious offences.

In this discussion, we shall highlight how does tax minimization strategies help in framing tax planning for your business to run smoothly and definitely legally.

Legal Tax Minimization Strategies Influencing Tax Planning for Business

Tax planning is the part and parcel of your business, but to put all necessary terms and conditions in place, you have to take professional help from licensed tax accountants and consultants from the registered accounting firm in Hobart. It is then you shall have a thorough tax planning resulting from the legal tax minimization strategies.

1.Maximizing Tax-Deductible Expenses

Business tax deductions are categorized into business expenses which lessen your business profits and incomes, and hence your tax obligation. Federal Government has brought about development by enhancing the instant asset write-off scheme.

Assets like motor vehicles and equipment valued at $150,000 will be immediately be counted under tax deductions for all the businesses having less than $500 million turnovers. Earlier the asset threshold limit was $30,000 for claiming the instant asset write-off, while $50 million was the annual business turnover limit.

The additional tax-deductible business expenses comprise of –

• Wages and Employees’ Salaries

• Insurance

• Travel Expenses

• Business Loans Interest

• Business Premises Rent

• Business Premise Repairs and Maintenance

• Lease Payments on Equipment and Machinery

• Depreciation on Major Assets (which cannot be write-off under the instant asset write-off scheme)

As the financial year nears its end, you might pre-pay the due tax-deductible expenses in the next financial year before 30th June 2022, provided cash flow is available to you. This very strategy is effective to maximize tax deductions in the current financial year.

2. Conducting An End–Of–Financial Year StockTake

When the value of all your unsold stock decreases between the beginning and end of the very financial year, then you can claim the difference as the tax deduction. Alternatively, if your stock's value increases, then it should be categorized into income.

3. Setting Up A Company

In Australia, the company tax rate is 27.5% for businesses having less than $50 million as annual turnover. If your business is of a sole trader with a partnership business structure, then it could be a lower rate than the amount to be paid under your individual marginal tax rate.

Nevertheless, you have to understand the costs associated with setting up a company along with the ongoing costs. All the benefits of a company setup, which also include the potential tax savings, must be outweighing these set-up and ongoing costs.

4. Setting Up A Discretionary Trust for Distributing Business Income

A discretionary trust set-up is yet another alternative to a company setup that allows distributing the income for trusting the beneficiaries with lower marginal tax rates, thus reducing personal tax liability.

5. Reducing Capital Gains Tax Liability

Strategically timing the asset scale for taking the advantage of tax concessions is a method to reduce the Capital Gains Tax (CGT) liability. For instance, an asset with a 50% CGT discount held by the business partners and trust structures for above 12 months.

Benefits of Tax Planning

Through effective tax planning, as a business owner, you can –

• Legally minimize your taxes

• Have a lot of money at hand for growing and developing your business

• Avoid the penalties for tax evasion

Planning, implementing and executing the business operations and earning revenues will be fruitful and successful only when the business is being legally operated. Following the tax-planning schedule is a major part of a legal business running. But you need not pay more than you should, so it is necessary to follow the advice and guidance of tax accountants and consultants. Likewise, implementing the tax minimization strategies will get you ahead of proper tax planning, which will further keep you clear before the ATO.