Why do you need a TAX Plan before a TAX Return? Because, “Insufficient facts always invites danger”*
There’s around six weeks until the end of financial year and if you haven’t already considered what your tax position will be by then, now’s the time to find out.
Even at this late stage, tax planning can deliver a more favourable tax outcome. Leave it too late and your accountant will simply have to make the best of the limited options available in the absence of any planning.
Spock made a good point back in 1968 when he famously observed that, “Insufficient facts always invites danger”. As I will outline here, tax planning is all about compiling sufficient information prior to tax return preparation so that your tax outcome can be improved.
Put simply, tax planning is consultative while tax return preparation is administrative.
Tax planning is particularly important for business owners who have tight working capital arrangements; who rely on cashflow from their business to generate personal wealth; who need to service large personal debt; or who want more ‘free’ cashflow to provide the leverage they want to achieve goals.
Tax planning creates options, and this provides greater control, especially in terms of your cashflow. Tax planning enables you to consider the timing of your tax obligations, allowing you to meet your obligation now or later by deferring income and/or bringing forward expenditures. You may also consider paying more to super (a tax-effective savings vehicle), which will provide tax minimisation benefits now as well as contribute to your personal wealth for retirement.
Tax planning can lessen your tax liability, which inevitably provides more money for implementing new projects, buying assets or paying yourself a bit extra.
Tax planning allows you to take advantage of government incentives, including the small business $20K instant asset write-off provision and it can enable you to make the most of investment opportunities. For example, a capital protected investment loan can allow you to pre-pay interest to enjoy the full year’s tax deduction in the current year, which may offset establishment costs and interest.
In the absence of the business facts that tax planning identifies, you will certainly be in danger of paying more tax than needed. There are other benefits of pre-end of financial year tax planning as well. Tax planning discussions will extend to the important matter of your accounting systems and their ability to provide accurate figures; the general health of your business in terms of profit or loss; the impacts of debtors and cashflow; and your own personal prosperity as a business owner.
So, what should you do next?
If you are a business owner and this article has caused a light bulb moment or two, make an appointment for tax planning advice now. If your own accountant only offers tax returns and not tax planning, call me. Tax planning is central to what we do because these discussions consider all aspects of your business and personal prosperity.
When tax planning with me, we’ll discuss your current accounts, profit & loss report and balance sheet to end of May. Bring along your sales/revenue forecast as well as any expected but out of the ordinary expenses to June 30. The key outcomes from our meeting will be for you to understand your tax position and how we may be able to improve it; and how you will meet any tax liability in a manner that is comfortable for your business, so that you are well prepared for the new financial year.
So, to make the most of your tax planning meeting, you would need to bring these reports and documents:
– Accounting file – Eg. Xero fully reconciled and up to the date for the meeting
– Purchase & sale documents for any assets purchased or sold during and up to end of financial year
– Your ‘projected’ income and expenses for the remaining part of the financial year
– Last year’s tax returns, but only if you are not a client of MCA, and you would like to know more about tax planning for your affairs.
If you need help, please give me a call. Tax planning and tax advice along with business advice and systems design is central to what we do, not only for your business success, but your personal prosperity.
Click here for earlier articles in my Live Long & Prosper series:
#1: Set a course for smooth cash flow – Make it so!
#2: Systems – Logic is the beginning of wisdom, not the end!
#3: Tax Planning – Insufficient facts always invites danger.
#4: Coming soon – Sustainable Cash flow: To boldly go where no man (or business) has gone before
*Spock – Star Trek, season 1, episode 24 (“Space Seed,” 1968)
