Do you worry about a big tax bill sneaking up and catching you off guard?
If so, it doesn’t need to be like this because if you actively monitor how your business performs and plan for tax, you’re halfway there. Here are some things to keep in mind.
Understand the Business Climate
Always be aware of the current business climate and how that is likely to impact your operations.
An uncertain economy and increasing costs and/or interest rates may affect your margins and cash flow.
Say NO to a Zero-Tax Mindset
Too many business owners have a zero-tax mindset.
This won’t work because if your business is profitable, tax is inevitable.
Putting your energy into tax planning, puts you in control and empowers you to build enough profit so that tax isn’t a problem.
Avoid the June Trap
Some businesses fall into the trap of spending big in June to reduce their tax bill.
However buying unnecessary equipment, delaying invoicing or rushing to pay debt down to save tax purely for tax purposes could hurt your cash flow and create longer term problems.
At PTP, we use this term a lot: kicking the can down the road. In other words, delaying the inevitable, rather than managing it
It’s not about trying to pay no tax, but more about planning for it and understanding what it looks like.
Tax Planning is Key
Tax is based on profit, not cash in the bank, and it can be paid long after it’s incurred.
So, it’s important to keep on top of your income versus expenses such as loan repayments, drawings and money owed.
In our experience, good businesses pay tax. Great businesses plan for it- they know in advance their tax position and how much tax they are probably going to pay and have that money put aside with a plan to help reduce that number.
The Bucket System
Having a separate bank account with a ‘bucket’ of cash to cover GST, PAYG, superannuation and income tax will help.
Businesses that don’t do this may end up feeling like a hamster on a wheel, constantly reacting to tax obligations and continually paying tax (or being unable to pay it) rather than managing it proactively.
Good Planning is Great Business
Tax planning can smooth out the highs and lows, achieve the best possible average tax rate and maximise wealth.
We use a three-year lens – reviewing the impact of last year, assessing how this year’s strategies are working and looking at whether you need to adjust planning for next year.
Ultimately, it’s about staying in front of it and knowing what’s coming.
Top Tips for Tax Planning
Here are our top five tips for tax planning:
- Set up a dedicated tax bank account – Set aside cash weekly/monthly for future bills.
- Review your financials regularly – Know where you are at each month and ensure it lines up with your tax savings (and top up if required!).
- Prioritise profit – Maximise your profit and then manage and minimise the tax that comes with that.
- Stop June ‘panic spending’ – Please don’t spend $1 to save 30 cents.
- Stay ahead of what is coming -Know what your tax looks like 12 months from now.
If you haven’t already, the best time to start planning for your next tax bill is now.
Watch our ‘Never worry about tax again’ webinar here: https://www.youtube.com/live/6KtwgmSWSwc
If you would like to discuss how to maximise your business’ tax position, feel free to contact us.
