Make Tax Planning Part Of Your NY’s Resolutions

New Year’s Resolutions and planning are as relevant for your taxation affairs as they are for any other aspect of your life.  A well thought out tax strategy allows you to align your tax affairs with your other financial and life goals, use the legislation to your own advantage and ensures that the ‘right’ amount of tax is paid (cutting down on the surprise of an unexpected tax bill).


Tax Strategies


Taxation is a significant outgoing.   With all of your outgoings, it’s important to make sure that you are paying the minimum amount legally required.  Paying more tax than you are required, results from either a failure to do something or a lack of understanding about the legislation.  Tax Planning and strategies which incorporate your situation and your goals will prevent you from making these unnecessary payments.


Mrs X’s Story


One of my favourite stories about how an effective tax planning strategy can help reduce your tax and achieve financial goals involves a client of mine.  Mrs X worked for a Bank for approximately 30 years.  While she worked she dreamed of retiring to live beside the beach.   One year when we met to discuss her Tax Return she mentioned her dream to me.  We started planning how she could make this dream a reality.   One option available to her was to borrow to purchase a beachside property and rent it out.


While she received rent each year, it wasn’t sufficient to cover the interest and the holding costs of the property.  The shortfall was incorporated into her Tax Return and reduced her overall tax payable.  She used the reduction in tax payable each year to reduce her level of borrowing.  By the time she retired, she had paid off the loan and was able to live beside the beach.  Knowing about the tax implications of her investment enabled Mrs X to achieve her dreams.


While this strategy worked well for Mrs X, each Taxpayer will have a specific strategy that works for them.  Spending the time to plan and identify this strategy will assist in achieving your financial goals.

Planning does eliminate the surprise of an unexpected tax bill and ensures the bill is as small as legally possible.

Beware Surprises


Nobody enjoys paying tax yet many people leave their tax payments to chance by not properly planning.  While many people don’t have their goals clearly defined like Mrs X, planning does eliminate the surprise of an unexpected tax bill and ensures the bill is as small as legally possible. This is just as important for businesses as it is for individuals.


Planning requires constant vigilance and review of your situation so that when a taxing event occurs there is an opportunity to understand the tax consequences of it.  Some common examples where lapses in vigilance are costly involve capital gains on the sale of assets.


The tax on the gain is payable at the time of lodgement of the Tax Return which generally occurs a long time after the gain occurred.  Without proper planning, the proceeds from the sale may be used to purchase another investment without allowing for the tax payable on the gain.  Worst case is a larger than expected tax bill and no means to pay it except for selling the newly purchased asset!


Additionally people may be holding onto assets that would result in a capital loss on their sale.  In some circumstances a Capital Loss reduces a Capital Gain.  The amount of the gain could be reduced resulting in a lower tax payable if both assets were realised during the same year and the loss offsetting the gain.  This situation can only occur with sufficient planning.


These are only two examples from thousands of instances where people have achieved a better outcome in their tax situation through planning. Your Tax Agent or Accountant will be able to help you with these plans.  Vigilance does pay off.


New Year’s Resolution