Today I want to talk about something that is everyone’s favorite topic. Of course I’m talking about tax! You know the saying, ‘the only sure things in life are death and taxes’, right? Unfortunately, it happens to be true. But how much tax you pay often depends upon you!
Now, unless you’re either in a very simple tax situation or you’re superstar tax accountant up to date with all the latest changes in the tax laws, I would suggest that you seriously consider getting an expert on your side. The fact is, most of you are too busy handling your portfolio and doing other worthwhile things to dedicate the time and research necessary to prepare your tax documentation as best as they can be done.
Property owners are audit targets
If you own property, you have the need for tax planning in a big way, especially since the Tax Office is finding new ways to take a closer look at how you’re paying your tax. Audits are on the rise in Australia, and lucky for all of us, property owners are likely targets for a tax audits.
Why are property owners targeted?
It may be because properties can be multiple sources of income, which can easily be misreported or otherwise incorrectly documented. It’s also true that the more properties you have, typically the more companies you have and the more tax documents you file. This alone makes it more likely to be audited. I know this to be true. If you’re like me and have several companies that you’re preparing documentation on, an audit shouldn’t be too surprising.
Plan well to pay less tax with the right structure
That’s why I want to talk about what you can do to pay less money to tax and have more leftover to buy more real estate. There are some smart things you can do while there’s still a bit of time to get things in place. Here we are at the end of the first week of May and there’s still time to get your tax house in order before June 30 arrives!
For example, by this time of the year, you should have a pretty good idea of what your income and expenses will be for the year for tax purposes. Look at what those figures mean. Does your income push you into a new tax bracket? Is it time to set up a bucket company, where you can distribute income into it at 30 cent on the dollar instead of paying 32.5 or even higher? You need to find out how to take advantage of the lower tax brackets that exist with the right kind of structure in place!
Maybe you should be changing your structure for holding your company or companies? If your current structure doesn’t allow you the flexibility with regard to tax, then you should consider changing it to one that does. For example, are you still in a sole trader or a partnership? These structures not only can prevent you from taking some breaks that are available, but are also not very effective for asset protection. So changing your structure can be a win-win strategy, even this late in the year.
Make changes at end of quarter or tax year
Ideally, a good time to do that would be at the beginning of a new quarter or a new tax year. That’s because it give you a “clean division” from one quarter or one year to another that makes it easy to calculate the differences that the strategies allow you. That means, of course, that you need to be preparing for that change beforehand, because it does take some time working with your accountant to put everything in place to make that change. Now would be a good time to start for the next tax year…
That goes for your accounting system as well. You may want to change from a manual accounting system to a computerized one. This can truly simplify your record keeping by sending your receipts for expenditures right into a cloud-based system. You have no need to save receipts after you’ve snapped them and saved them to your database.
This new technology can come in quite handy when you think about how quickly some of those receipts fade…a hot day in the car and they’ve gone completely white and unreadable. Those are unusable for tax purposes. Remember, all receipts must be in English and legible.
Don’t wait too long to contribute to your Super
You also want to be smart about your Super contribution and when you actually do it. Many people think, “Alright, I’ll make a contribution on June 30 to get the tax break.” But hold on. The rules say that your contribution has to be received by the ATO by June 30. That means you should have made your contribution at least several days earlier!
The end result is that your June 30 Super contribution gets applied to the next year. Then, when you make another contribution for the next year, you’ve actually made two Super contributions for the same year! The Tax Office then will have to penalize you for over-contribution in a single year. This happens quite a lot but is totally avoidable by putting your tax strategies in place well ahead of when they’re due.
June 30 is not too far away; in fact, it’s just around the corner! That’s why this is important to get on with straightaway. This is especially true if you have acquired new properties in the past year or if your income has changed, putting you in a different tax bracket than you were last year. Or, if one or more of your children have been working or are off to university, you will have some new adjustments to figure out there, as well. Don’t leave it until you’ve painted yourself into a corner, so to speak, with little time to make the changes you need.
I know that your tax situation will be just little different than someone else’s, so there is no on piece of advice or one particular strategy that will solve all tax problems all the time. That’s why it’s so important to get professional advice and strategies that are designed around your particular situation. It takes some time to do it right, and it does cost some money, but the headaches and the money it saves you are well worth it. That way, if you are audited, you have your ducks in a row and you are not at a loss for where things are or trying to catch up with a hasty strategy after the fact that won’t do you much good.