Pay Less Taxes With These Key Tax Strategies

Pay less taxes 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.


Australia Dodges Recession Again! Still There Are Dangers!

Australia Dodges Recession

Good afternoon everyone.

Today Australia reported on its GDP figure for the Oct-Dec 16 quarter and it was a positive result (as expected) at a growth of 1.1%. This followed a very unanticipated -0.5% drop in GDP from the Jul-Sept 16 quarter. However, it must be said the Reserve Bank reduced interest rates again in both July & August 2016 which would have assisted the GDP growth in the Oct-Dec 16 quarter.

So the Reserve Bank did it again! However, the Australian economy has been financed by accumulating household debt since 2008. This was fuelled by twenty interest rate cuts peaking at 6.25% all the way down to 1.5%. Yes that is twenty rate cuts from the peak! Now construction is our biggest industry and household debt has grown from 150% to 210% of GDP. Most of us are now shaking our heads at where this has taken our property market. We are dizzy. There are now 500 square meter blocks forty five kilometres (45 km) from Sydney CBD selling for $500,000 (no house).

At the same time our unemployment levels are uninspiring, our wages growth non-existent & our government deficits continually rising. Recently, Australia rose its debt ceiling to $500 billion. Sound familiar! This is not to say we are anywhere near as bad as say most of Europe or the USA, however it is on the same track at a smaller scale. This is a purposely orchestrated failed economic model has been adopted by nearly every developed country. The FINAL result is no jobs or no wages growth, massive government deficits, interest rates that pay 0% to depositors if you’re lucky, high property prices compared to incomes & banks on the brink of collapsing or constantly requiring more liquidity. Brilliant!

Or course this could never happen in Australia? Well at least one bank is very nervous. The Commonwealth Bank this month ceased all re-financing from customers coming from other banks. This represents about 33% of all of their new loans and a very significant loss of income.

Today's GDP figures are simply a product of more interest rate cuts and provide only temporary benefits. A much needed reality check that these economic policies don't work is coming very soon and the trend is still on the downside and it is only a matter of time before it all starts to unravel. Of course it can be delayed by more interest cuts all the way to zero and the Reserve Bank along with other central banks are irresponsible enough to do it even if it creates an even bigger asset bubble.

On a positive side it will not be the end of the world. Economic downturns provide a much needed adjustment to over confident borrowings. Also, if you position yourself financially there are great opportunities where you can prosper from a recession. In addition, long term Australia is solid. You can continue to invest, however your investment strategy will need to be different in this economic upside down world.

We will be running a series of seminars around Australia from April 2017 providing great insights for individuals to customise their wealth strategies that compliments their needs but at the same time not ignoring the greater economic forces at play.

So I will keep you all posted for our seminar dates.

Until then have a great day.

Lawrie Carrozza

Foresight Accounting

Foresight Accounting is an accounting firm in Melbourne.. We service businesses in surrounding suburbs including; CaulfieldCarnegieGlen IrisPrahranCamberwellToorakArmadale.