This is the second part of my how-to-pay-less-tax in 10 easy steps article. If you haven’t read the first 5 steps then head over to the Buckscoop blog now to get the first half of this article. In this part I'll be covering important aspects like time control, investing to reduce tax, looking at your circumstance based finances, not forgetting about small value claims as well as the importance of considering capital gains before selling assets.
Tax Tip 6: Time Control
If you know in advance that you will be putting through a large amount of tax-deductible expenses ,then you have the luxury of choosing which financial year you would like to put include them in.
For example: if you have a large expense that is tax deductible and your income for a certain year is going to increase your tax threshold above the required limit, it may be best to purchase the items you want within this tax year. The purchases will lower your taxable income for that particular year and may even push you down to the next tax bracket.
A different scenario might be that if you took an extended holiday or some unpaid leave during the year and as a result your income and tax will be lower, it’s more beneficial to make big deductible purchases in the following year to reap the most benefit. Both of these scenarios will help you reduce the amount of tax you pay in the higher bracket and save you money.
Tax Tip 7: Investing
Investments are another smart way to reduce your tax bill whilst also bringing some financial rewards too. Although this may be the case for some it’s not the same for everyone. So it’s important that before you decide to invest, you speak with a financial planner. At the end of the day there is no point making a poor investment now simply to save a small amount of tax and risk losing your capital in the process.
Tax Tip 8: Circumstance Based Finances
If for example your partner had funds invested in a short-term account that was earning an amount of interest, it would be beneficial to invest it under the name of the person with the lowest income. This will result in the lowest possible amount of tax being paid on the interest earned from that account saving you money.
Tax Tip 9: Skipping the Little Items
You may think that focusing on the big items when it comes to submitting expenses is important, but its all the little ones that can often add up providing a much larger deductible amount in the end. Do not ignore the small $2 or $20 purchases, because over 12 months those will add up. Keep all receipts even if you are not sure if it can be reclaimed, because its better to have them and find out you can’t reclaim as opposed to the opposite.
Tax Tip 10: Selling Your Assets
Capital Gains tax is another thing to be wary of and if you plan on selling an asset then there are a number of factors that need to be considered to get the best value for money. If you own an asset for longer than 12 months, for example, then you may be entitled to a 50% capital gains discount. Alternatively you could choose to sell the asset in a year that you expect to earn less money because your capital gains tax wont have as big of an impact on your tax liability.