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Pay Less Taxes With These Key Tax Strategies

Navigating taxes can be a complicated and frustrating experience without the right knowledge. With a range of different rules and requirements to meet, you might be tempted to take the easy route and let your taxes be calculated automatically, but you could be losing out on great returns and deductions. With these key tax strategies, you can optimise your taxes, paying less and saving more. If understanding tax regulations and how they apply to you is taking too much of your time and energy, the right business accountant service can help you. Detailed bookkeeping is the best way to track your expenses and plan accordingly to hold on to your yearly profits. For personalised advice, contact our team at Foresight Accounting today. Use the 80/20 Tax Rule The 80/20 tax rule applies to businesses or contractors if you earn less than 80% of your income from one source. The 80/20 rule is taken from the Pareto Principle, named by an economist asserting that 80% of consequences come from 20% of causes. This rule allows you to claim more expenses, increasing your deductions as well as providing the opportunity to income split. Defining a Business Two key criteria determine whether you classify as a business or not. Under the 80/20 tax rule, you only have to meet one of these criteria to classify and receive tax benefits. For instance, the first rule states that if you worked on a contract for two different clients, earning less than 80% of your income from one source, you are classified as a business. For example, the Australian Tax Office will recognise you as a business if you earn $70, 000 from one contract and $ 30,000 from the other. Likewise, the 80/20 tax rule can also apply to employment. If your income comes from one source but you have employees helping with the service splitting the work, you would be considered a business. For instance, with four employees each completing 25% of the work, each individual is providing less than 80% of the total service, classifying your work as a business. Additional Deductions As a business under the 80/20 tax rule, you have access to a range of potential deductions, such as: Home Office Rent & Utilities Car Expenses Travel Education Computers & Office Furniture Client Amenities Internet & Phones Income Splitting Superannuation $30k x 2 GST Reimbursement On Cars Other Equipment By navigating these deductions as a business rather than an individual, you are likely to save more money and pay less on your taxes. Though this rule is applicable to any business, it is recommended to discuss your options with a professional small business accountant so that they can take your specific needs into account. What is Income Splitting? Income splitting is the practice of the greater earner of a household splitting their income with the lower earner so that they are beholden to a lower tax rate. While this would add a tax to the lower earner, the household would pay less tax overall due to the income being divided into two. Income splitting can be tricky to navigate as it comes with its own rules and regulations to prevent people from taking advantage of the system. If you classify as a business under the 80/20 company tax rule, you can split your income with your spouse if they’ve contributed to the business as any other employee. In this instance, tracking their work as proof is recommended so that your taxes remain above board. Increase Productive Deductions One of the simpler ways to reduce long-term tax expenses is through careful purchases. The ATO will only reimburse a third of individuals' work-related expenses. By taking advantage of this reimbursement to purchase items of value, you can increase your productivity and earnings. Any money spent on improving your education, high-quality office equipment and tools or income protection, are worthwhile expenses that can help you build towards a better income or work environment. Discover More Strategies to Navigate Taxes These key strategies can help you reduce your tax payments and get back more back with deductions. With a wide variety of rules and regulations, there is more than one way to pay less and save more. If you’re not sure how these tax rules apply to you or want to know how else to navigate them, reach out to us at Foresight Accounting today. With an experienced tax accountant, you can get personalised advice on your taxes and reduce your profit loss. For an expert accountant in Malvern, look no further. DOWNLOAD THE EBOOK