When paying taxes, you'll notice that there are certain tax brackets. The more you make, the more your tax. This seems like a simple structure, but it can be more complex than meets the eye. That is because there are methods to get you out of the tax bracket you're presumably in. The obvious reason for wanting to lower your tax bracket is to spend less money and taxes. But how do you get there? Are there any legal ways to really reduce your out-of-pocket expenses at tax time? Or, are you locked into paying the highest amount?
Are you a thriving Australian business owner? Have you finally reached $180,000 a year and are overjoyed with your success? Have you recently figured that the ATO is going to take a portion of that money? If you make $180,000 a year, the ATO will take over $50,000 right off the top. For every dollar you make over $180,000, they'll take $0.45. You will be giving away almost 50% of your business to the Australian government. Does this sound unappealing? If so, it's likely you've been wondering how to use the tax structure in Australia to your benefit and what strategies you can implement.
Why The Tax Structure Isn’t Great For High Earners
We already went over the fact that if you make over $180,000 a year, you'll be forgoing $50,000 right off the bat. Let's say you were extremely successful. You made over $1000000. You will have to pay half a million dollars to the ATO. This is if you have assessable income equaling $1000000. That is the key to assessable income. If the total amount is less than $180,000, you'll pay less in taxes. Almost no one, strike that no one, wants to pay that high of taxes. The ATO taking so much money that you worked hard for can be defeating.
Can You Legally Lower Your Out-of-Pocket
You absolutely can lower your out-of-pocket cost at tax time. The key is to implement strategies unique to your situation. Not every strategy applies to every person. You could be a business as a sole proprietor and have more options than somebody in a partnership if you don't own a business and may open you up to other possibilities. For example, using offshore strategies may be beneficial to some but not others. It is also more labor-intensive to keep track of and requires the help of a professional.
If you're making over $180,000 a year, you should absolutely be talking to a tax professional. This is the best way to reduce your out-of-pocket expenses through effective legal strategies.