6. Control the timing of your tax deductible expenses
If you know in advance that you will have considerable tax-deductible expenses, you may be able to choose which financial year you purchase them in.
For example, if you have a large expense that is tax deductible and your income for that year is going to push you up to the next tax threshold, it may be best to purchase your item right before the end of the tax year. This will lower your taxable income for that year and, in some cases, could move you down into a lower tax bracket.
Alternatively, in a year that you take an extended holiday or unpaid leave and your income (and tax) is lower, it may be more beneficial to delay purchase of larger tax deductible items until the next time your income and tax jump higher. This will help you reduce tax paid on the higher tax bracket and save more money.
7. Investments
Depending on your individual finances or circumstances, making an investment can also help you reduce tax considerably.
However, this is certainly not the case for everyone. Before you decide to invest, speak to your financial planner who can advise you if an investment will suit you. Remember, the investment should benefit you now and into the future – there is no point saving a small amount of tax now a poor investment ends up losing you your original capital in the long run.
8. Adjust finances based upon circumstances
If you have a partner, it can be possible to adjust your finances to suit your circumstances. For example, if as a couple you have funds invested in a short term account earning some interest, it would be beneficial to invest it in the name of the lowest income earner as they will have to pay the least tax on the interest earned on that account.
9. Pay off your mortgage
In general, you are taxed on your savings so if you are an avid saver, you could face a hefty tax bill at the end of each year. If you are buying your own home, you can kill two birds with one stone by paying the money you can save each month onto your home loan instead. You pay down your mortgage PLUS you are no longer taxed on that money. The over payment is usually still accessible as a re-draw, should you need to use some of the money in the future. However, watching your home loan get lower and lower can make you think twice before dipping in.
10. Selling Assets
Do you plan to sell an asset that is subject to Capital Gains Tax (CGT)? If you are, then there are things you should consider. How long have you owned the asset? If you have owned the asset for longer than twelve months you may be entitled to a 50% Capital Gains discount. If you haven’t owned the asset for at least twelve months, you will have to pay more CGT.
Does your income fluctuate? If so you may choose to sell the asset in a year you expect to earn a lower income, as your capital gain won’t have such an impact of your tax liability.