What is Tax Planning?

May 11, 2021


Tax Planning is where you will review your financial situation and apply strategies to minimise or reduce the potential tax liability at the end of the financial year. This is around applying strategies within our law, within our legislation legally, to potentially minimise any tax debt that our clients might have coming to the end of the 2021 financial year.


How is tax planning done?



So myself as a tax agent, I will have clients engage me for tax planning services. And I’ve actually written down five steps that I will quickly run through to give you a broad overview of how we complete tax planning.

The first step is we’ll be reviewing the clients accounting file where say they’re in Xero, ensure all the data is correct and up to date, which will lead us on to completing step two, which is determining their year-to-date profit. For example, we might look at the period 1st of July to the very end of March or the 1st of July to 30th of April and look at how the business has been trading for say those 9, 10, 11 months depending on when we determine that cut off. The third step of this process is we’ll be extrapolating out a full financial year. If I’m reviewing July to April, and we don’t know what May or June is gonna be, we can make some informed decisions based on our understanding of the business, maybe discussions with the client as to what the full 2021 financial year will look like. And based on that review, step number four be estimating any tax payable amounts for the 2021 financial year. It’s kind of using our informed crystal ball to see what will the 2021 financial year potentially look like? What will the tax payable for the client look like? And then step number five is considering any tax planning strategies for the client that we can suggest to reduce that potential tax liability.



What are some tax strategies?



Now, this is really going to be dependent on your situation. And this is why you really need to speak to a tax professional around the appropriate strategies for you. And there are so many, and I’m not going to list them all here. It’s going to be really dependent on what’s going to be the best strategy for you. But I will run through a couple of the most common strategies that might be implemented, whether that’s applicable in your situation or not. That might be making additional super contributions, pre-pay expenses, new asset purchases, and depending on the entity structure, reviewing how the distribution of profit is flowed through a family group.



What will tax planning cost me?



You’re probably wondering, “Michelle, how much is this all going to cost me?”, And I always say – it depends. You know, how long is a piece of string? Everyone’s circumstances are different. It could be a couple hundred dollars to a couple of thousand. It really depends on the individuals situation. What I would like to say is Tax Planning is definitely an investment. I’ll give you an example. Just for arguments sake, it costs you a couple of thousand dollars to get tax planning done by your tax agent. But the reality is by engaging them to complete their review, complete recommendations, tax strategies that might potentially save you tens of thousands of dollars in tax. So a $2,000 investment, resulting in $10,000 worth of tax savings is definitely a no brainer. I mean, you’re going to pay the two to reduce your tax by a significantly more amount. Not to say that that’s always going to happen but it’s one of those things where as a business owner, you’ve got to be making the right decisions and engaging those professionals who are going to help you long term in the overall picture. So it’s going to be totally up to you as a business owner as to whether you will get someone to do tax planning, but it is something that I highly recommend with my clients to look at coming into the tax planning season.



Next steps?

So if you’re all about reducing your tax liability for the 2021 financial year, go speak with your trusted tax agent and engage them for tax planning services. They will totally love you for it. I’m about to start that rollout with my clients. To be honest, tax planning is really fun work for us. It is one of the more exciting type of accounting work we do, coming from a tax accounting nerd.

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Nothing makes me happier than implementing time-saving tools and systems that help small businesses get ahead. Instead of being a cog in a large corporation, freelance consulting lets me be the adaptive Bookkeeper on the Sunshine Coast you need. Whatever your financial situation, I’ll help you find new approaches to cut unnecessary costs and alleviate undue pressure. If you’re ready to watch your business grow, let’s start a conversation