Tax planning is all about keeping track of your finances so as to remain in good standing with the tax authority and to regulate your tax burden. Most people also don't realize that tax planning is important for helping them minimize their taxes by taking advantage of deductions and incentives offered by the tax authority.
As you start off the New Year, it is a great idea for you to take a closer look at how you manage your finances so you can identify cost saving opportunities. A tax accountant can assist you in reviewing your current financial situation and making better decisions moving forward. Here are a few ways for you to get started.
Reducing your taxable income
The Australian tax authority implements what is known as income tax. This is a taxation of a certain portion of your total income during a specific tax year. The higher your income, the higher tax you will pay. Taking a closer look at your total income is the best place to start when considering tax planning.
You can reduce your tax burden significantly by reducing your taxable income. Several ways you can do this include contributing money towards a retirement fund, contributing to charity, or claiming credits for business expenses.
If there are costs that you incur on a regular basis in order to do your job (such as travel expenses, car hire, accommodation costs, etc.), you can deduct these from your taxable income. A tax planning service can assist you in looking for effective ways of reducing your taxable income.
Identify tax deductions that you qualify for
As previously mentioned, an effective way of regulating your tax burden is to reduce your taxable income. There are several tax deductions that are provided by the tax service that allow you to reduce expenses from your income and to reduce how much you will eventually be taxed.
These tax deductions include expenses incurred for healthcare, mortgage payments, taxes on personal property (such as vehicles or real estate), and fees incurred while preparing your taxes. Working closely with an accountant can help you identify the specific amounts of these deductions and how much they can reduce your taxable income.
Maximize on tax credits
A tax credit is a reduction in the amount that you are taxed, or a refund of a certain portion that you had already paid in tax. These credits are offered as an incentive for certain activities you may be involved in that have a positive effect on society. For example, using solar panels and other renewable energy sources in your home enable you to qualify for a tax credit. Credits are also available for taking college classes and investing in real estate. A tax planning service can help you identify tax credits that you qualify for.