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The Benefits of Tax Planning for Your Bottom Line
Tax Planning season is here! With 30 June fast approaching, now is the time to consider tax planning for your business. They say that if you fail to prepare, prepare to fail – or in this case, prepare to potentially deal with a hefty tax bill and disrupted cash flow! Getting a clear picture of your tax liabilities well ahead of time brings with it a number of key benefits for your business and can ward off any nasty surprises from the ATO. Furthermore, there’s no need to stress about finding the time to navigate the complex Australian tax legislation framework by yourself – we’re here to do that work for you. So, all that’s left to do is gather your relevant documentation, and read on about the benefits that considered, thorough Tax Planning can do for your business.
Clarity About your Tax Liabilities
There aren’t too many guarantees in life, but solid tax planning can give you clarity and a degree of certainty about the tax your business is obliged to pay. This means that you’ll have a good idea well ahead of time about the amount the ATO will be asking for come tax time, so you can start putting some cash aside to cover it.
Cash Flow Certainty
Following on from the point above, it’s important to remember that in these tough economic times, the last thing a business wants is to be hit with a hefty tax bill all at once. Yearly tax planning means you can arrange instalment payments if required, and more effectively manage your business’ cash flow.
Compliance with Legislation
As far as business owners are concerned, perhaps the only invoice more upsetting to receive than an unexpected tax bill is a fine. Another one of the benefits of tax planning is that it not only helps you legally minimise your obligations and find legitimate deductions to take advantage of, but it also ensures that your business is compliant with all relevant tax legislation.
Particularly relevant here is Fringe Benefits Tax (FBT). This is an area often scrutinised by the ATO, and yearly tax planning can keep you on your toes to remain on the straight and narrow. This includes record-keeping requirements and having a solid understanding of what the ATO considers a “Fringe Benefit” (a comprehensive list can be found on the ATO website here).
Increase Your Profitability
When you have a clear outline of your tax liabilities for the year, and an action plan on how to manage everything effectively, the outcome is more money in your pocket (or in your business’ bank account) than in the ATO’s. This additional capital can be used to invest back into your business and fuel growth. Tax planning time is also a great opportunity to review how your business is tracking. This can include comparing your performance against industry benchmarks, reviewing key performance indicators and the strength of your Balance Sheet ratios. It’s the perfect time for business improvement to finish the financial year strong and set you up for a great new financial year.
Guide Strategic Decision-Making
Consider the value of being able to predict the future for your business. Tax Planning gives you the opportunity to weigh up competing business opportunities and decide which is best from a tax perspective. Tax planning may also uncover opportunities to apply for Government grants. While it might not be a real crystal ball, it certainly gives you important foresight into the potential tax consequences of certain business decisions, and unlock doors that were previously unknown to you as a business owner.
What Information Does Your Accountant Need for Tax Planning?
Although it’s such an important activity to undertake for your business, one that could save you a significant amount of money, the information your accountant will need should be readily at hand for you. Typically, you will need to provide the following (for the year in which your accounting is conducting tax planning):
- Computerised accounts (reconciled to 31 March)
- Value of stock on hand as at 31 March (where applicable)
- Details of new assets
- Purchase and sale details of property or assets that were sold
- Details of superannuation paid
- Summary of any rental property income and expenses
- Estimated non-business income for the year (e.g. wages)
- Estimated income of your spouse
- Children’s date of birth and income details (if applicable)
As you can see, the documentation required for tax planning is relatively easy to get your hands on, especially if you maintain your accounts and paperwork well throughout the year.
The Tax Planning Process
Put simply, your accountant undertakes your tax planning project by using the information you provide to analyse your business’ financial situation, tax liabilities, and opportunities to legally minimise tax obligations. They will then present to you your tax planning options, including things you can implement in your business, possible deductions, and Government grants you could take advantage of, plus wealth creation strategies that can minimise your tax obligations.
After the analysis is finished and the solutions are laid out, your accountant will guide you through an action plan to implement the tax planning strategy, allowing you to reap the rewards and see real improvements in your business’ bottom line.
Given the benefits it has for your business, professional tax planning is a bit of a no-brainer to supercharge your business’ financial management and overall strategy, setting you on a path to growth and further success. It can allow you to reduce your business’ tax liabilities, improve cash flow, remain compliant with tax legislation, and mitigate the impact of potential tax-related surprises.
The key is to start now! Get the tax planning process underway before the busy tax season in the middle of the year. The strategies that come out of tax planning can take time to implement effectively, so don’t leave it too late. The McKinley Plowman accounting team can assist you with your business’ 2023 Tax Planning – you can reach us on 08 9301 2200, or contact us via our website. And, for more information on our Tax Planning service, please click here.
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