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Why tax efficiency is essential in an effective financial strategy

While families across Australia couldn’t be criticized for feeling the pinch especially when considering our general out of pocket costs, there is an often untapped resource that many dislike, and fail to consider, when they’re mapping out their next financial steps.
The rising cost of living is a trouble that has plagued us for the longest time especially because no one wishes to feel as if they’re living the life of a pauper for the sake of being debt free and able to formulate considerable and reliable retirement funds.
With our young kids needing laptops for school, ever increasing rates and an endless slew of bills stemming from vehicles, internet, registration, personal health insurances and other miscellaneous costs which loom over us, you’d be right in assuming most people feel as if the only path forward is to minimize their personal spending or minimizing their debts.
Here are a few reasons to consider if you’re being as tax efficient as possible that may change your view toward your current financial options:
1. Depending on your circumstances you may be entitled to claim more of your tax than what you think is possible.
Often we are victims of circumstance and leading busy lives, some people consider a trip to a tax professional as pleasant as eating sandpaper. This certainly a case of “you get what you pay for” with some families electing to simply lodge via E-tax rather than feeling like the cost of their accountant will outweigh their overall return.
There may be far more you’re able to claim as part of your income tax return and it is often worth it to speak with a professional who is able to find exactly what you can claim or alternatively, provide you guidance on how you can do it yourself.
2. Income tax is one of the largest debts we will face in our lifetime
Conclusively we feel as if the two major debts we face in our lifetime will be the debt of being a home owner and the debt of retirement. An often neglected portion is the tax debt we will face throughout our working years.
While thinking about how much tax you pay could be compared to tap dancing over a recently lit fire, consider below:
A family who has a combined before tax income, depending on how these individual incomes are earned could end up paying between a range of $20,000 to $35,000 year in income taxes. If you were to use the lower end of the assessable income tax scale over the course of a 30-year mortgage, a family in a similar circumstance may end up paying in excess of $600,000.00 in income taxes or as some would say, a veritable bonfire of tax paid.
Before you panic, read below:
3. There are methods available to reduce or redirect the amount of income taxes you’re paying
While it would be fair to say that all financial strategies are circumstantially dependent, we shy away from asking questions about the T-word for fear of seeming under informed or out of the loop. Salary sacrificing directly into your mortgage or your superannuation, depending on if it is feasible, is an excelling method of reducing your tax assessable income and bipartisan the amount of income taxes paid yearly.
For those who are looking for a solution to their residential mortgage debt, retirement short-fall and their tax exposure each year might consider using an investment property for the purpose of negating their tax exposure. Utilizing this method is dependent on a few key elements however with the correct mortgage product, property and tax structure, it can also be the most effective method of “killing two (in this case three) birds with one stone”.
When every dollar counts it will always pay to count on every dollar. It will rarely steer you wrong to know more about your tax exposure and what you’re able to do in line with having more money available to assist in reducing your debt and building on your current retirement position.
If you have questions in regard to your current tax exposure and what may be available to assist you in maximizing your efficiency, feel free to contact us.