5 Common Tax Planning Strategies

Any successful tax planning strategies center around three themes like increasing deductions, reducing income and utilization of lower tax rates available. Here are some common strategies employed to assist in tax planning.

Make Deductible Superannuation Contributions

It can be done by a salary sacrifice arrangement or claimed as a tax deduction by a self-employed person. As superannuation fund pays 15 percent tax only on the contribution you have shifted a portion effectively of the business profits into a lower-taxed environment. However, there are limits on the amounts for which you can contribute and claim a deduction.

Review Any Bad Debts

As you are entitled to a deduction in the year you write off bad debt, identifying bad debtors and writing them is an easy and cost-effective strategy and should be done on a regular basis. So to receive the deduction, there should be no prospect of recovering the debt if it is later recovered, it should be included as assemble income.

Review Timing of Invoices

It is a good idea to prepare and send interim invoices for work completed partially and care should be taken. In this case, it may be prudent from a tax perspective to invoice to complete the job rather than have a part of the income assessed in the current financial year.

Review Your Inventory

Many fail to review their inventory either for damaged or obsolete items. Generally, these items have significantly lower values than undamaged or current stock yet they are still valued at their full value. By revaluing these items, you can create a further deduction for your business.

Small Business Concessions

Businesses with an aggregated turnover of less than $2million, there are many concessions available relating to deductions you can claim when:

• Trading stock rules: If the change in the value of the stock from the previous year and it is less than $5,000, there is no need to record as income in the current financial year providing an opportunity not to record an increase in stock values if its less than $5,000.
• Prepayments: By prepaying the expenses that are next 12 months now, you can claim a tax deduction for the whole expense in the current financial.

These are some tax saving strategies available. Any strategy undertaken should be done in consultation with the accountant to make sure it fits with your objectives and goals.