In many countries the term fiscal year is used to indicate the year to which companies prepare their accounts, in the UK it is sometimes used to refer to the tax year, the year used by statute for tax reporting by individuals and is not commonly used for accounting years used by companies.
The official fiscal year varies from country to country
USA – 1st October to 30th September
UK – 6th April to 5th April
Australia – 1st October to 30th September
In Canada, New Zealand, India, Hong Kong, and Japan,the government’s financial year runs from April 1 to March 31
I will use the term fiscal year as the year when your profits are charged to income tax.
1. Time your withdrawal
If you are taxed on cash withdrawn from the business, as it is the case for a director of a limited company in the UK, delay your withdrawal if you do not require the cash until the following fiscal year. Payment of tax is then delayed for a full year.
2. Keep your business cash and private cash separate
Do not mix business receipts and expenditure with personal receipts. Always bank cash takings and set up a standing order to a separate account for your personal expenditure.
3. Keep your business records neatly
Give your accountant properly filed and sorted paperwork. You can provide them with copies – this will save money in your accountancy bills as normally accountants charge on time spent. You will also be less vulnerable to tax investigations.
4. Give yourself a tax free gift
In the UK you can reward an employee by a “long service award” to any employee with over 20 years service. If you trade with a Limited Company you are an employee and you can reward yourself with this tax free lump sum.
Make enquiries with your advisor to see if the same applies in your country of residence.
5. Ask for advice
Ask your Accountant or Tax Advisor about the records you need to keep. More people suffer interest and penalties as a result of inadequate record keeping than from outright dishonesty!
6. Avoid unnecessary penalties
Do not forget to inform the Tax authorities that you have started trading. In the UK it is within 3 months of the first day of trading.
7. Make an election
If you get married or enter into a Civil Partnership and both partners each own a property, do not forget to decide as to which of the two residences is to be classed as your main residence. In most countries the profits from the sale of main residence are exempt from Capital Gains Tax or equivalent.
8. Pre trading expenditure
Do not forget to keep all receipts from expenses prior to starting trading as most of the expenditure will be deductable once you start trading
9. Are you feeling guilty?
If you have not declared all your income or have underpaid tax, you will be leniently treated if you disclose it voluntarily before you are found out!
10. If you have a doubt ask
Tax authorities prefer to answer questions rather than you making a mistake because you are not sure what to do.
Warning: Some of the tips above are simplifications of complex tax planning techniques and you must take advice for them to work for you.
Hasta la vista ….