Make Tax Planning a Year-Round Process
- Thursday, 13 August 2009
What is synonymous with April? Tulips and tax returns. But once tax returns are finished, can you forget about taxes for the rest of the year?
No! It is what you are doing all year round that impacts on the taxes you may pay in April. Tax professionals are often shocked and disappointed about some of the items that clients overlook during the year.
For example, many people do not have a will. Although this does not directly impact on their taxes this year, it certainly will have significant impact not only on their income taxes in the year of death, as well as on their estates and their families.
There are other reasons for financial and tax planning during all 12 months of the year. Government clawbacks are a sneaky way of taxing through the back door for those who are unaware. It has become more complex and difficult to avoid. It is important to consider all ramifications of your income.
For instance, to a young family the Child Tax Benefit is an important supplement to their income. This credit can be lost if the family income exceeds a certain amount. However, did you know that if one of the parents received a "tax free" income such as Workers Compensation, this amount would also reduce the Child Tax Credit the young family would ordinarily receive?
What does this mean to a couple at age 40, who may not be in either the lower income level or in their retirement years? Unless this couple starts to look at the level of their individual incomes and their retirement savings, they may inadvertently be finding that they are either hit by clawbacks or are paying higher taxes than they really need to pay.
A couple should ensure that the amount of each spouse's retirement plan takes into consideration other pensions and annuities that the couple might be entitled to. It is in the early years of saving for retirement that a difference can be made. When the couple reaches the golden years, it is usually too late to make any significant difference. Income splitting should be kept in mind when you are first starting to save for retirement.
Finally, remember to get good tax planning advice as you approach retirement - especially if you receive any retirement pension or lump sum amount. Your financial future can be significantly impacted.
So, although you might like to forget about taxes for most of the year, it is in your best interest to be proactive with tax planning. Consider the tax implications of any financial transactions or changes in your income or benefits. After all, you don't want to pay more taxes than necessary.