The best teams know the game is won not on the field but in practice. The same can be said about taxes. Planning now with your financial advisor at Arbor Financial Melbourne will keep more of your money in your pocket now and into retirement.
Your ability to maximize income without paying too much tax becomes even more important as you approach retirement. But, with some golden rules and a little planning, you can be confident of keeping more money with your family.
One rule to always follow is to stay within the law and avoid aggressive tax avoidance schemes as they may lead to heavy penalties or even prosecution. Here are seven ways to keep more money with Arbor Financial Melbourne.
1) Don’t forget about your spouse’s income
If both partners work, there is always the temptation to only look at the higher-earning spouse’s income. But suppose we want to make sure we can live comfortably in retirement and maintain our lifestyle. In that case, taxes must be considered holistically – looking at all incomes and how they interact with each other. Because of increased allowances for a single taxpayer, a non-working spouse might not have a tax liability at all. Tax paid by the lower-income spouse can then be claimed against the higher earner’s income when filing the return.
2) Make use of your pension contributions
Pension contributions can be an effective way to offset taxable income and provide future security in retirement. If you choose funds, it’s generally worth going for a fund with a higher risk profile. The dividends from high-growth companies are taxed at lower rates than interest income in the case of cash and bonds.
3) Look for opportunities to reduce your taxable income
There are many ways that money can be moved into a form that will not attract tax. Examples are moving money into investments that attract concessional (lower) tax rates like superannuation or moving money between family members.
4) Get the most out of any concessions you are entitled to
Taxpayers in the pension phase can still make contributions but receive a tax deduction for their contribution. If you’re eligible, it makes sense to take advantage of this concession while you can. A good planner can advise you on the most effective way to do this.
5) Keep your investments in your control
Investments in the name of a company, trust, or spouse may be beyond the reach of creditors when things go wrong. But they can also complicate your tax situation and make it more difficult to access funds for retirement. So a better strategy is to keep investments in your name, even if this means potentially higher tax rates down the track.
6) Consider distributing profits
If you make a profit on any of your investments, consider whether this might be an opportunity to share the wealth with your children. A long-term perspective illustrates that tax is very expensive – it can eat up more than 50% of some company profits. So then, it makes sense to keep reinvesting if the company has a promising future and you can benefit from compounding. However, if the company cannot reinvest profits at an attractive rate of return, it may be better to distribute these to family members in lower tax brackets.