The Importance of a More Flexible Approach to Tax

Having an annual tax plan is a good starting point if you want to reduce your tax bill and have more control over your taxes. But be careful not to make it too rigid.

If you make a tax plan at the beginning of the financial year and never go back to it, you will struggle to adapt when your business, personal, or tax environment changes. As a result, you might miss out on opportunities and strategies that could save you money.

At PCR Accounting & Advisory, we recommend a more flexible approach to tax planning, aiming for a solid annual tax plan while leaving plenty of room to manoeuvre and adapt to inevitable changes.

Start With a Solid Annual Tax Plan

A flexible approach to tax works best when you have a solid foundation to build on. Otherwise, it’ll be all chaos as you make plans on the fly.

Start by creating an annual tax plan with some core strategies. Include specific plans on things you’re sure about. Here are some things you can have in your annual tax plan:

• Concessional contributions up to the $30,000 cap. This is one of the easiest ways to reduce your tax bill, so include it in your annual tax plan. You can then be more flexible with your non-concessional contributions depending on your income and cash flow.
• If you have upcoming business expenses, structure them strategically throughout the year to take advantage of the deductions (e.g. if you’ve had a good business year, front-load your biggest expenses to reduce your tax bill).
• If you run a business or offer professional services, you can typically control when you send invoices. In your annual tax plan, you can plan your invoices to spread your income strategically and avoid bracket creep.
• Asset sales. Plan when you sell specific assets to reduce your capital gains tax. For example, you can opt to hold off selling shares until after 1st July to avoid bumping your income to the next bracket.

Talk to a tax planner to help you create an annual plan that takes into account your overall financial goals, income projections for the year, and any upcoming changes, such as a planned house purchase or retirement.

Plan for Change

Change is constant, whether it’s in your business, professional, or personal life. Businesses grow, families expand, divorces can occur, and even the legal landscape can change.

Your annual tax plan should be flexible enough that you can respond to changing circumstances to maintain progress towards your goals and ensure you’re maximising tax savings. A flexible tax plan has two big benefits:

• You don’t get blindsided by a large tax bill. You have flexible plans in place to address situations that could increase your tax liability, such as a significant income spike or a change in business structure.
• You can quickly take advantage of new opportunities to save money on tax. Say you take out a business loan. You can reduce your taxable income by paying 12 months of interest upfront and claiming deductions in the same year.

Have a Hands-on Approach

As your circumstances change throughout the year, keep checking whether your tax plan is still the most effective one and whether it’s in line with your goals. If necessary, adjust or replace existing strategies with new ones.

Here are some specific ways to stay on top of your tax plan:

• Regularly review your financial position. Pull your financial statements monthly to stay proactive in tracking your tax liability and adjust your tax strategies accordingly.
• If you use accounting software, set up trigger alerts for income spikes so you don’t get surprised at tax time when you realise you’ve gone up a tax bracket.
• Track tax updates and ATO announcements. Staying in regular communication with your accountant can also help you stay aware of evolving legal changes.
• Talk to your financial advisor about establishing structures like a family trust or an SMSF ahead of time to deal with upcoming changes like a big bonus, a new member of the family, or a property purchase.
• Get ongoing tax advice throughout the year, not just when creating your tax plan. Your tax planner can offer useful insights into an evolving situation.

Take More Control of Your Taxes With PCR

If you’re scared about getting a huge tax bill or don’t want to miss out on opportunities to pay less tax, we can help you take more control of your taxes with flexible tax planning.

At PCR, we provide tailored tax advice that aligns with your unique financial and personal objectives. Enquire online today to learn how a more flexible approach to tax planning can help you.

Disclaimer: This blog post is for informational purposes only and should not be considered as financial or legal advice. Consult with a qualified professional for personalised guidance based on your specific circumstances.