To start we ensure that J&J’s books are up to date (say March) then carry out a quick review to verify the records. Using their March data we estimate J & J’s tax position. This is set out in Table 1;
Table 1 Estimated Tax Position
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|
YTD March
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Est. Y/E 30 June 2015
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|
Taxable Income
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$90,000
|
$120,000
|
|
Tax @ 30%
|
|
$36,000
|
|
Less Instalments (incl. Q4)
|
4 @ $8,000
|
$32,000
|
|
Est. Tax Position
|
Tax to pay
|
$4,000
|
If Jack and Jill do nothing they will pay a total of $36,000 for the year.
What happens next – some bespoke ideas to reduce tax
At our tax planning meeting we discuss various alternatives for reducing tax. The key considerations are – Do the options make good business sense? And do they fit with Jack and Jill’s personal goals.
The following tax planning options are agreed to:
We agree they should lease it, this way they can pre-pay 12 lease payments of $1,000 before 30 June 2015.
- Additional Superannuation
Jack and Jill are keen to build up superannuation. They have only contributed $5,000 and can contribute a further $20,000 each before 30 June if they want.
Contributing additional superannuation requires cash, we determine they could contribute another $10,000 each and still have sufficient cash to meet financial commitments. To claim a tax deduction the additional contributions must be made well before 30 June.
Jack and Jill receive a report showing their estimated position, a list of the actions agreed, their revised tax position (Table 2) and will receive a follow up call.
Table 2 - Revised Tax Position
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|
Est. Profit
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Est. Tax Position
|
|
Tax Profit
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$120,000
|
$36,000
|
|
Tax Planning Actions
|
|
|
|
Prepay lease
|
12,000
|
3,600
|
|
Additional Super
|
20,000
|
6,000
|
|
|
|
|
|
Revised Position
|
$88,000
|
$26,400
|
|
Less Instalments
|
|
$32,000
|
|
Estimated Refund
|
|
$5,600
|
|
Tax Saved
|
|
$9,600
|
How they saved their hard earned mula!
By undertaking tax planning Jack and Jill will save $9,600 tax. Better still they have used their money wisely and bought a new Dyno Tuner for their business and put extra money away for retirement.
What you need to do
Tax planning should be done early to ensure all options are considered and the best decisions made. Don’t wait until it’s too late, call us now on 07 4972 5177 or contact us.
