Don’t let tax catch you out: 5 things to keep in mind

17 Sep Don’t let tax catch you out: 5 things to keep in mind

Tax is one of those things that can quietly sit in the background for most of the year — until suddenly it is time to lodge a return, prepare financial statements or deal with an unexpected tax bill.

Whether you are an employee, investor, property owner or business operator, tax can become complicated quickly. Rules change, circumstances evolve and opportunities can easily be missed if you only think about tax once a year.

Here are five important things people often forget about tax — and why having an accountant by your side can make such a difference.

Tax planning should happen before tax time

One of the biggest misconceptions is that tax planning starts when your tax return is being prepared.

By then, many opportunities may have already passed.

Good tax planning is generally an ongoing process. Decisions about business expenses, investments, superannuation contributions, asset purchases, capital gains and cash flow can potentially affect your tax position.

Talking with your accountant throughout the year gives you the opportunity to understand the possible tax implications of important decisions before you make them.

Keeping good records really matters

Receipts, invoices, investment statements, vehicle records and business expenses can be easy to overlook during a busy year.

However, good record keeping is one of the foundations of effective tax management.

Without the appropriate records, you may find it difficult to substantiate deductions or accurately calculate income, expenses and capital gains.

Rather than scrambling to find information at the end of the financial year, consider creating a simple system for storing records as you go.

Your accountant can also help you understand which records you should retain and how long they may need to be kept.

Your circumstances can change your tax position

Tax is rarely a set-and-forget exercise.

Changing jobs, starting a business, purchasing an investment property, selling shares, receiving an inheritance, retiring or making significant superannuation contributions can all potentially influence your financial and tax position.

Even something that appears relatively straightforward can have consequences you may not have considered.

This is where professional advice becomes particularly valuable. Your accountant can look at the broader picture rather than simply focusing on one transaction.

A deduction doesn’t mean something is free

It is easy to hear the words “tax deductible” and assume an expense effectively costs nothing.

That is not how deductions generally work.

A legitimate deduction may reduce your taxable income, but you have still spent the money in the first place.

Making unnecessary purchases purely to obtain a tax deduction can therefore be poor financial management.

Your accountant can help you separate sensible business or investment decisions from spending that provides little genuine financial benefit.

The goal should usually be improving your overall financial position — not simply trying to reduce tax at any cost.

Tax decisions can affect your broader financial strategy

Tax does not exist in isolation.

Decisions involving property, investments, superannuation, business structures, retirement planning and estate planning can often have tax implications.

For example, selling an investment could potentially create a capital gain. Changing a business structure may affect taxation and asset protection considerations. Making additional superannuation contributions may also involve contribution limits and eligibility requirements.

This is why accountants often work alongside financial advisers, lawyers and other professionals.

When your advisers communicate and understand your broader objectives, you can make more informed decisions.

Why having an accountant matters

A good accountant does much more than prepare your annual tax return.

They can help you understand your obligations, maintain better financial records, plan ahead, identify potential issues and consider legitimate opportunities within the tax rules.

Most importantly, professional advice can provide confidence that your decisions are being made with a clearer understanding of the potential consequences.

Tax rules can be complex and they can change over time. What works for one person or business may be completely inappropriate for another.

Rather than relying on assumptions, social media tips or something that worked for a friend, speak with a qualified accountant who understands your individual circumstances.

Because when it comes to tax, good advice is not simply about paying less tax — it is about making better financial decisions.

If this article has inspired you to think about your unique situation and, more importantly, what you and your family are going through right now, please get in touch with your advice professional.

This information does not consider any person’s objectives, financial situation, or needs. Before making a decision, you should consider whether it is appropriate in light of your particular objectives, financial situation, or needs.

(Feedsy Exclusive)