Even though tax laws are constantly changing from year to year–there are still ways for you to increase the size of your tax refund, while simultaneously minimizing your tax liability. How do you accomplish this? Well, one way to accomplish this is if you are lucky, you might have wealthy friends who can give you a pointer or two. For the rest of us we’ll need to seek the advice of wealthy individuals. Only then will we be able to gain insight into the unknown realm of legal tax reductions. These tax reduction tips, suggested by Daniel Vasin, a Senior Accountant, in his e-book “Tax Minimization Strategies,” will help you maximize your disposable income and decrease the amount of money you owe the government.
1) Bring Forward Your Tax Deductions
One tax strategy that you can use this year is bringing forward your tax deductions. This allows you to maximize your tax deductions, while aiming to reduce your taxable income.
When you bring forward your tax deductions for the current year, you automatically reduce your taxable income. And when you have less income to claim, you pay less in taxes.
2) Use the Capital Gains Tax Discount
Any assets you own, such as a house or business, generally increase in value over time. The profit you make is called “capital gain” and it occurs when you sell an asset.
Capital gains tax is the increase in the asset’s value. Capital gains are also subject to being taxed. Even though capital gain is treated as income and is subject to being taxed, a discount comes along with it. This discount is available to individuals, trusts and superannuation funds, but not companies.
The capital gains discount for individuals or a trust is 50 percent and 33 percent for a gain made by a complying superannuation fund.
Investors need to hold onto an asset for at least 12 months in order to qualify for the capital gains discount. When you do this, the savings in taxes could be in the thousands, especially if its value has a considerable increase.
3) Set Up a Company
A company is an entirely separate legal entity from its members and its directors. A company has its own assets and pays its own taxes. A company should also have its own bank account separate from its owner’s bank account. The tax rate for companies is 30 percent compared to 46.5 percent paid by individuals in the top marginal tax bracket. That’s a savings of 16.5 percent, which makes setting up a company a wise financial decision, especially when it concerns tax-planning strategies.
The main roles in the company are the shareholders, director, and secretary. In small businesses, the same person can perform all three of these roles.
These are the top 3 ways to minimize your taxes. You can use one, two, or all three of these tax-saving strategies to help you maximize your disposable income while minimizing how much money you owe.