How to reduce tax for high income earners

It makes sense that the more money you earn, the more tax you’ll pay at the end of the financial year, right? While that may be true, there are a number of ways for high income earners to drastically reduce how much tax is eventually paid.

In this article, we will discuss 7 of the top ways to do exactly that.

7 tips to lower the amount of tax you pay

If you’re a high income earner, a comprehensive tax plan that’s put in place well before the financial year ends is essential to minimise what you owe to the ATO.

Just some of the key ingredients in this plan may include the following.

1. Maximise your work-from-home deductions

The past few years have seen the vast majority of office workers across Australia switch to full-time working from home arrangements.

And although it seems we’re nearing the end of the cause of this and many people are heading back to the office, a lot of employers are still offering work from home hours ongoing. This may be part-time or even full-time.

For the many who will still be working from home in at least some capacity, there are several deductions that can be made towards their overall taxable earnings for the year, including:

  • Furniture
  • Internet
  • Phone
  • Electricity
  • Necessary equipment

Calculating the specifics of these deductions can be a little confusing. If you need expert assistance to ensure you’re receiving your maximum amount of deductions, please call us today on 03 8651 6999 to make an appointment.

2. Donate to charities

If you’ve been feeling particularly generous and in a giving mood, great news!

When you donate to most charities, whatever donation you give is fully tax deductible. A couple of things to note here, though:

  • There cannot be any benefit received from your donation whatsoever. For example, this includes charity raffles where you receive a ticket to potentially win something. However, minor tokens are acceptable (wristbands, lapel pins, etc.)
  • The charity must be an organisation that has been endorsed as a Deductible Gift Recipient (DGR) to ensure your donation is eligible to be deducted.

So be sure to do your research about which charities you donate to, otherwise you might discover the hard way that your donation isn’t in fact tax deductible. Also, remember to keep all of the receipts.

3. Make personal contributions to your super

While your employer will be contributing to your superannuation fund every year, you’re also able to do the same over and above what they’re paying into it. Each year, you’re eligible to make a personal contribution of $25,000 on top of your employer, all of which is deducted from your overall taxable income.

This not only reduces how much tax you end up paying, but of course also helps grow your retirement fund – a major benefit when it’s finally time to hang up your hat and kick your feet up.

4. Skip the Medicare levy surcharge with private health

Unless you get private health insurance, you’re liable to pay the Medicare levy surcharge, which is applied to not just your taxable income but also any amount on which family trust distribution tax has been paid plus your total reportable fringe benefits.

As a high income earner, your levy surcharge will fall within either the Tier 2 or Tier 3 category, at rates of 1.25% and 1.5% respectively.

Avoid paying the Medicare levy surcharge by choosing a private health insurance plan that works for your needs.

5. Further your education

If you’ve been thinking about continuing on with education that pertains to your current employment, this can be claimed as a deduction at tax time. So while you’re advancing your career and becoming even more employable, you’re simultaneously reducing how much you pay in tax!

Education that’s deductible can include:

  • Training & professional development
  • Self-education
  • Executive coaching
  • Further study

6. Opt for income protection insurance

As a high income earner if the unexpected happens and you’re unable to work, how will your family cope with the financial stress that may occur as a result? You don’t want to have to dip into your hard-earned savings just to stay afloat, so consider taking out income protection insurance for peace of mind.

This will cover up to 75% of your gross salary and super, which allows you to focus on recuperating so you can get back to work sooner.

The premium you pay for it is also a tax-deductible expense, further reducing your overall taxable income and lowering your payable tax.

7. Leave it to the professionals

Even when you’re extremely well-researched on the methods to help you reduce your taxable income and minimise how much tax you end up paying, there may well be some strategies you miss.

Additionally, preparing everything for tax time can be as frustrating as it is time-consuming.

Forego the headaches and hassles, and engage a qualified, experienced accounting firm that has the expertise with high end income earners to get the job done right and save you as much as possible.

On top of everything the amount you pay an accountant is able to itself be deduced from your earnings next year.

Speak with the tax experts at Valles Accountants

Does this all sound a little too complicated and confusing? Or perhaps you simply just don’t have the time in your busy schedule to spend crunching numbers and going through things with a fine-tooth comb. Whichever the case may be, we get it.

At Valles Accountants, we have worked with countless high income earners to effectively reduce their tax through a variety of different methods. Our extensive amount of experience and knowledge assisting clients just like you means we’re here to help you achieve the best possible outcomes every time.

So book an appointment with our friendly team at Valles Accountants today by calling 03 8651 6999.

Alternatively, you can send us a message online and we’ll be in touch with a reply soon.