As an accountant, it is not uncommon to be contacted by friends and family members outside of business hours with burning tax questions. Yesterday afternoon, a friend and small business owner rang to ask whether it was possible to know her tax liability before 30 June or prior to lodging her tax return. My answer was of course – YES!
Tax planning has been around for a while, but it certainly has not diminished in terms of its benefits for the business community and individuals with numerous investments.
So what is it and why is it so important?
Tax planning allows your accountant to conduct a review of the current financial position of your business or personal circumstances to determine your likely tax position by the end of the financial year. This is normally conducted between April and June each year, as the more financial information we have, the better our assumptions are, and the more accurately we can plan for your tax position.
You might be asking yourself – how will this benefit me? Why do I want to know how much tax I’m going to pay? The three main reasons we feel this process is of value to our clients are:
It helps with cash flow planning
Taking up tax planning lets you know your estimated tax liability almost 12 months before it’s due. For example, by completing your tax planning in May 2021 for the 2020/21 financial year, any tax liability determined wouldn’t be due until the 15th May 2022 (if you lodge your tax return with an accountant). That gives you 12 months to plan and save. This is particularly important if your business is doing very well and your tax liability is high.
You've got to time it right
It gives you time to implement tax-saving strategies before the end of the financial year. For example, after reviewing your financial position your accountant may suggest making additional superannuation contributions or accessing small business tax concessions relevant for your business prior to 30 June. The timing of implementing these strategies is very important to achieve maximum benefit and your accountant may suggest tax savings you hadn’t thought of.
Talking to an expert can make all the difference
It allows for a conversation with your accountant throughout the year about how your business is tracking and what you need from them. Do you know what your turnover is? Is your gross profit or net profit on target and meeting or exceeding expectations? How has COVID-19 really impacted the numbers? Do you have enough staff to meet increased trade needs? Are you happy with your current accounting software? Do you need new equipment/finance? Do you want to buy/sell a business? Now is the time to talk about changes you can implement to finish off this financial year with a bang, and start 2021/22 afresh.
So what are you waiting for? Let's start the conversation.
Article Modified 24/02/2021
eBook: 10 ways to lower your tax bill!
Prepare for EOFY and minimise your business tax with our free guide on 10 strategies you can consider (plus a few more strategies thrown in!) to make sure you don't pay more than you need to.
Considering strategies like taking advantage of ATO's temporary full expensing scheme, reviewing owners wages, and super contributions to reduce personal income tax liabilities are all things that could make a big difference on your tax bill.