The more you make, the more they take!
If you are earning $35,000 a year, you are currently paying 19% tax on every dollar made until you hit a certain income level. If you are earning $180,000, you will be paying 47% tax on every dollar made above this.
So, what can we do with this in mind?
We can time our income and expenses.
Assume you are having a bumper year, but next year you are taking some time out or the market is in decline – meaning a big drop in income. It might be a good idea to bring forward expenses into the current year to maximise the tax effect.
Let’s say you plan to buy a new asset in the next few months. It might be more effective to buy it in June rather than July or August. That way you can claim the tax deduction in the current year when your tax rate might be higher.
Another option is to defer income by possibly delaying the issue of invoices to your customers until after year end (if appropriate)
Of course, the reverse is also true.
𝐓𝐈𝐏 𝐎𝐅 𝐓𝐇𝐄 𝐃𝐀𝐘: Understand the different tax rates and income levels and time your income and expenses to suit if it also makes commercial sense.
Tomorrow I will give a simple example.
Like any tax advice make sure you get help for your specific situation. If you are a business owner and you are overwhelmed with your financial situation, I’ve got your back.
Simply provide a few details below and I’ll schedule in a FREE 15 minute appointment to discuss your situation.