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Let’s assume that you run a business in a company and you’ve made $100,000 profit and you’re going to pay 30% of that to tax. Now, your goal is to reduce your tax but one of the best things you can do is to find ways to reduce your tax, but at the same time, increase your wealth.
One way of reducing your tax is to reduce your income but, of course, none of us want to do that.
We want to focus on making more.
So, let’s focus instead on how we can reduce tax by increasing your tax deductions. One of the main tax deductions is to make a contribution into superannuation. And so, if we assume that you can make $30,000 contributions towards your super, you will save 15% of that in tax. So, from some of your
One of the main tax deductions is to make a contribution into superannuation. And so, if we assume that you can make $30,000 contributions towards your super, you will save 15% of that in tax. So, from some of your profits you could put money into a self-managed fund or into a superannuation account.
Let’s say that you have a family trust and you might have some pre-payments that you can make of interest for a margin loan or for a share portfolio of managed funds which can provide money for that. So, if you made a $10,000 interest repayment you could save 30% in tax in this illustration. If you make other pre-payments of tax deductions before 30 June, you’d save 30% off those as well.
Why do we want to look at reducing your tax?
If we can get your tax down, we can increase your wealth.
That means you’ve got a deposit for your family home or for an investment property or you can pay off your non-deductible home loan faster and build up more assets in your family trust and self-managed fund for superannuation.
Remember, you only get back a marginal tax rate of what you spend so, if you spend $100 on a tax deduction, you only get $49 back using the 49% top marginal tax rate.