Every year, after the March quarter ends we commence tax planning with our clients.
Whilst most accountants offer this service, there are a few things you can do within your business to help the process along or consider prior to speaking with your accountant.
Firstly, you’re probably wondering what ‘tax planning’ is. Basically it’s a mid-year review of your business operations to allow discussions around options that might serve to reduce the total tax payable.
Many business operations these days take place via several entities, which often means that there can be loans or transactions between related parties. Tax planning lets us ensure that none of these loans or transactions will cause adverse consequences, and if a particular action is required to ensure this, it gives our clients time to enact the tasks needed prior to 30 June.
For businesses that operate through a trust, decisions on distributions are required to be made prior to 30 June each year. During tax planning we estimate incomes for all parties to help decide where income is best distributed for greatest tax effectiveness.
Similarly, for corporate entities it may be prudent to declare or pay a dividend to shareholders prior to the end of the financial year – this decision is also considered as part of the tax planning process.
In addition to estimating possible tax for the year and ensuring the required cash flow is available, we also look at measures that can be taken to reduce taxable profit including.
- Adequate stocktakes
- Timing of income and expenditure
- Pre-payments
- Bad Debts
- Asset purchasing decisions
If you would like to try tax planning yourself, we have a basic checklist available for download that you could work through and then discuss with your advisor.
