Being organised leading into the new financial year can put you in a better financial position quickly – getting the uplift from being tax effective could be your best return all year. That’s why we share tax time tips.
This article covers off a few key reminders you should consider before the new financial year begins. It is designed to be a quick easy read to make sure you haven’t forgotten about this during the busy start to the year.
Please note that this is not financial advice.
The 5 easy tips to make the most of tax time are:
- Prepay tax deductible expenses
- Salary Sacrifice – Make additional deductible superannuation contributions
- Gains and losses – Manage your investments
- Time for a structured budget – Start a savings plan
- Look at or review Private Health Insurance
Before you continue, if you want to learn about structuring your financial foundations right then learn more in our latest ebook. Otherwise, feel free to ask us questions at the bottom of this page.
Prepay tax deductible expenses
Pay the tax deductible expense for next financial year but claim it this year when it is actually paid.
This is especially relevant for people that know their income won’t be as high next year.
Practical Example; Current financial year income $100k (tax 32.5c for each $1). Next financial year $15k (tax is nil).
Maternity leave is a great example of where we see this as an effective time to prepay tax deductible expenses where possible.
Salary Sacrifice – Make additional deductible superannuation contributions
Depending on your income, it can be an extremely tax effective strategy to increase your Concessional contributions (CC): which are made from ‘before-tax’ income and get taxed in your superfund at 15% instead of at your marginal tax rate.
This is typically known as Salary Sacrifice OR Additional Concessional Personal Contributions (which ensure you claim the tax deduction for)
Depending on what tax bracket you are in, the savings can be up to 30% on that money. That’s a quick and easy way to keep more wealth for yourself and less for the tax man.
The downside here is that there is a cap on how much you can do each year.
Gains and losses – Manage your investments
Before the end of every financial year you should be checking in on all of your investments.
A good adviser will be on top of this for you.
This is particularly important for ones that you want to sell.
Timing the sale can make a big difference in the amount of tax you will pay – if you have held the asset for more than 12 months, you will be eligible for the capital gains tax discount (50% discount on the taxable gain).
This may bring to light some assets that haven’t performed well since you have purchased them. Selling some of these assets (if appropriate) can increase your ‘capital losses’ which can be used to reduce the capital gains.
Time for a structured budget – Start a savings plan
Being able to take advantage of tax effective strategies usually requires you to have a level of capital (savings) around.
Eg. if you have no surplus cash – you can’t salary sacrifice or you can prepay next year’s tax deductible expenses.
If you have never set up a structured budget, I encourage you to start. (click this link here and you can download one for free).
It’s not about being restrictive for everything, it’s about the freedom you will feel as you can clearly plan for your personal and financial goals.
Having a structured budget and plan in place gives you much more clarity about the options you have for your future.
Look at or review Private Health Insurance
As a single or a couple, depending on what your income is – you might be paying the Medicare Levy Surcharge (MLS) through your tax return.
If you have the appropriate private health insurance cover you will be exempt from paying this extra amount in tax.
The tax savings may offset the cost of the private health insurance premiums. So you may actually receive ‘something for nothing’ many refer to it as.
Check the ATO website or ask your accountant if you would be paying MLS.
If you would like more information or personalised help with your financial affairs, just ask. We are financial advice specialists and are happy to spend the time with you to see if we can add value to your situation. 1st meeting is free of charge, check out what to expect.
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