Getting into debt is one thing, but tax troubles are an entirely different story. Governments can be punitive if you don’t pay them the money they claim you owe.
The trick here is to avoid getting into tax difficulties in the first place. While ATO debt forgiveness is available for people who find themselves in arrears or bankruptcy, you ideally want to avoid financial situations like that in the first place.
Fortunately, this post can help. We take a look at some of the most popular methods people use to avoid tax issues and get on the road to financial health.
Follow The Rules
The first step is to follow the rules and ensure you keep to the tax code. If you’re not sure what you should be doing, speak to a financial advisor or accountant who understands the law.
You should know the answers to basic questions, such as “What counts as an expense?” and “Is my car purchase tax-deductible?”
Having a fuller understanding will help you long term to avoid tax issues that could result in penalties.
Choose Tax-Friendly Locations
Another potential strategy is to choose tax-friendly locations. Some countries are friendlier to workers than others and charge lower taxes.
When considering moving for tax purposes, think about the potential drawbacks you might encounter. Consider the language, culture, and whether work is available. Think about the climate, pollution levels, political stability, and other factors that might affect your decision-making.
Record And Document Everything
It’s also good practice to record and document everything if you’re trying to avoid tax issues. Government departments can get uppity if you don’t keep the proper paperwork detailing your income, expenses, and other tax-relevant transactions. In the worst-case scenario, they might audit you, but at least you’ll have the paperwork to prove your case and defend your position.
Avoid Tax Scams
Another way to avoid tax trouble is to avoid tax scams. Criminals know that people are scared of the tax authorities and regularly send out letters demanding payment. Unfortunately, these often get people to send large sums of money to a criminal account. At the same time, the regular tax authority demands its share, which can put households in a difficult position
The best way to avoid tax scams is to educate yourself on how they work. If you get a letter in the post demanding money, double-check its legitimacy with your accountant and the tax authority.
Work Out Your Tax Credits In Advance
Another pro tactic is to work out your tax credits in advance. Don’t automatically assume you know what they are. You might have less money to play with than you imagine.
Keep Up To Date With Code Changes
You can also avoid tax troubles by keeping up to date with the latest tax changes. Don’t assume that they will remain the same year after year. Governments change the rules all the time.
For example, they might shift the income tax brackets or raise the rates. Other changes could include hikes for corporation taxes, more allowable expenses, and credits if a firm you own does R&D.
If you can’t stay up to date or don’t have the time, work with an accountant who is keeping an eye out on these developments on your behalf. Tax professionals can adjust your returns to reflect changes in taxes and help you plan for payments in the future.
Adopt Tax Strategies
Adopting tax strategies is another tool you can use to avoid problems with the tax authorities. Obeying the rules while minimising the payments you owe can be a powerful combination to protect your personal finances.
Various tax strategies exist to help you protect your assets and accumulated wealth. For instance, you might minimise the tax you owe by putting your money into tax-efficient instruments. You may have a personal allowance on how much money you can invest before attracting tax in your jurisdiction. You might also qualify for various deductions if you invest in education, a business, or specific economic activities.
Don’t assume you are currently living in the most tax-efficient way: you’re probably not. Talk to a professional and find out where you can improve your current financial position.
Look For Rebate Opportunities
Finally, you can avoid tax troubles by looking for rebate opportunities. Improving your cash flow can make taxes easier to pay when the bill comes through your letterbox. Take a look at the amount of tax you paid in previous years and ask whether it was excessive. If it is, you can make a claim.
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(Disclaimer: I’m not trained in finance so don’t take it from me. Feel free to grab ideas from this post but always see a professional for advice that is relevant and personal to your situation.)
