Why reducing your tax payments isn’t always the best idea.
No one wants to line the pockets of the Australian Taxation Office, paying taxes feels like giving money away for nothing. You work hard, and keeping your profits in your own pocket is the dream. Here’s why reducing your tax payments isn’t always the best way forward for your business.
Your accountant needs to take the whole picture into account
Having the goal of paying little to no tax is pretty normal. We don’t want to be paying more than we need to for our taxes. Working hard for our money, we should be taking home a tidy little profit.
Making a profit inevitably will land you a tax bill with the ATO and without the proper planning, it could get ugly. In our experience… It's not normally the amount of tax that is the problem, it’s when it comes as a surprise… or when you would have done something differently in hindsight, but now it’s too late.
Talking to your accountant, they can help you plan for, manage and reduce tax. If you walk in and tell your accountant that your only goal is to reduce the amount you're handing over to the ATO, they will most likely help you do a good job of this. Your mates at the pub will probably help too, the advice will be something along the lines of “go spend the money at Harvey Norman or Officeworks”, “put it into superannuation”, “buy a Dodge RAM”... “they can’t tax you on money that you haven’t made”. Knowing that life is often more complicated than that, communication between yourself and your accountant is crucial.
Communication is everything
Feeling comfortable talking to your accountant will make a big difference to how your accountant can operate. Knowing you’ve felt you can be open with your accountant will likely mean they’ll get a better understanding of what your business goals are. Your business goals, as you know, will be more complex than “reducing tax”. Maybe you’d like to buy a bigger home or a commercial investment, you might be working towards selling your business in the future, or renewing your Home Builders Compensation Fund insurance cover - this is all something that your accountant will need to consider when looking at tax planning for your business.
We often find that during the course of natural conversation these dreams and desires become apparent. Sometimes the things beneath the surface aren’t always front of mind in our meetings, so digging a little deeper can be really critical for our planning with you.
It comes down to competing goals - minimising tax is usually about reducing your profit… applying for a loan or getting the best possible price when you sell your business is about maximising your profits. Do you see the conflict?
So - you might need to pay more tax
Sounds nasty, but the truth is that reducing your tax often involves spending a lot of money and driving down your profit margins and depleting your bank accounts.
The best thing you can do is ensure that your business has an efficient tax structure… A structure that is suitable for meeting your business goals (commercial outcomes) and keeping tax to a minimum.
The fine line between paying too much and not enough
It’s like walking a tightrope, for sure. This is what you pay an accountant for. It’s our job to help you navigate paying the right amount of tax to keep your goals within reach, but without paying more than you need to.
Our flat fee arrangement means we’re always available to you, if a new goal comes up, or if you remember something after our formal meetings, you can always pick up the phone or send us an email so we can always be sure that the whole picture is ALWAYS taken care of.
We’re here to help. Click HERE to start kicking goals today.
