Smart Tax Strategies for High-Income Individuals
The Australian Taxation Office defines tax planning as a citizens’ right to keep their financial affairs and pay as low taxes as possible. However, these tax strategies for high-income earners have to be legitimate and within the legal grounds.
If unlawful ways to reduce taxes for high-income earners are used, heavy penalties including imprisonment and fines, will be booked under Tax Avoidance and Evasion.
To help you stay on the right path, consulting with financial services in Sydney can ensure you use effective and legal methods. Here are 5 strategies for tax deductions for high-income earners to help you make the most of your tax planning.
5 Strategies On How To Reduce Taxes For High-Income Earners
1. Donate To Charitable Organisations
If you like helping others and want to donate, there’s good news!
When you give money to most charities, you can reduce your taxes by the amount you donate. But remember these two important points:
- You shouldn’t accept anything in return for your donation, like tickets for a charity raffle. Small items like wristbands or pins are okay, though.
- Ensure the charity is officially recognised as a Deductible Gift Recipient (DGR) to allow tax-deductible donations.
So, it’s important to check which charities you donate to, or you might later find out that you can’t get a tax break for your donation. And don’t forget to keep all your donation receipts.
2. Opt For Private Health Insurance
In Australia, the Medicare Levy funds the healthcare system, which is a tax everyone pays. If you are a high-income earner and don’t have private health insurance, then you must pay an extra tax called the Medicare Levy Surcharge.
Getting private health insurance means you don’t have to pay this extra tax. Besides saving on taxes, having private health insurance can provide you with:
- Faster medical care
- The ability to choose your doctors
- Access to private hospital rooms.
It’s important to look at different insurance plans to make sure you get the coverage that fits what you need for your health.
3. Salary Sacrifice
Salary sacrifice, or salary packaging, is a way to pay less tax by agreeing to earn a lower salary before taxes in return for benefits worth the same amount.
A common salary sacrifice strategy is putting more money into your superannuation fund. Because money put into retirement funds is taxed at a lower rate of 15%, you can save a lot on taxes, especially if you usually pay taxes at a high rate.
Also, the extra money you put into your retirement fund through salary sacrifice isn’t taxable income, so you pay less tax overall. This approach helps you save on taxes now and increases your savings for retirement.
But, ensure you don’t exceed the limit on how much you can contribute and that everything you do follows the rules for retirement funds and taxes.
4. Claim Asset Depreciation
Using asset depreciation to lower taxes is smart, especially for people who own their businesses, like sole traders, and sometimes for individuals. Over time, equipment and vehicles lose value because they get old and worn out. This loss in value can be used to reduce the amount of money you have to pay taxes on.
If you figure out how much your assets have decreased in value, you can use this to lower your taxable income, which means you pay less in taxes. This is helpful for people who run their businesses and need their equipment, machines, or vehicles to make money.
It’s important to keep good records of how much your assets depreciate and to talk to experts. This way, you can ensure that you’re getting all the tax deductions you’re allowed to and not paying more taxes than you should.
5. Contribute To Your Superannuation Fund
Superannuation is an excellent way to get tax deductions for high-income earners so that Australians can save money. The money you put in and the interest it earns is taxed at just 15%. Depending on your situation, you could save as much as 32% in taxes on the money the fund makes.
Also, if you’re over 60, you get an even better deal because the money your super fund earns isn’t taxed at all. There’s no beating a 0% tax rate, making super the best option for saving for retirement. Many people don’t know this, but you can add up to $110,000 of your own money to your super fund each year.
Final Words
There are several ways to lower your taxes. Putting money into superannuation, giving to charities, and having private health insurance are good ways to reduce taxes for high-income earners.
Depreciation is another smart method for gaining some benefits. However, knowing how it will affect your taxes before you start is crucial.
This is why getting professional advice is essential before you try any of these strategies. Experts can help you understand the tax rules and any risks, considering your financial situation.
