There are certain times of the year that generate a flurry of consumer and business activity. Christmas, New Year, Mother’s Day. And tax time.
In the lead up to June 30, it’s hard to miss the deluge of marketing that encourage businesses and individuals alike to make the most of available tax benefits.
As a financial planner, I fully support anyone’s objective to maximize their tax returns by capitalising on deductions, however I say that with one caveat in mind.
If you’re only looking for ways to reduce tax at tax time, you may want to rethink your approach?
Another angle on that perspective is, if it’s really important to do financially, why are we only doing it at tax time?
I have this quirky little analogy about holidays that I share with my clients. It goes like this.
We are most productive in the period right before we leave to take a holiday? Why?
Because we are working to an important date.
We know that if we want to make that plane, train, or booking, and guarantee we’ll being laying back sipping champagne by the pool, then we knuckle down to get stuff down.
The June 30 tax time date works exactly the same way. It is a highly effective way of getting individuals and businesses to work to a set date.
In the lead up to end of June you would have seen and heard the advertisements to get people thinking along these lines.
For some businesses, this lead up to tax time of marketing and attention grabbing may even be for a period of months, especially if things haven’t gone as well as they’d planned over the financial year.
The downside of working to a fixed point in time is that it can cause people and businesses to buy or manufacture a tax deduction that perhaps wasn’t the best decision.
This is especially the case if considered in a broader context that also factors in our behaviour.
Why? Because managing your financial affairs at tax time, like so every other aspect of financial management, is driven by our behaviour.
If you felt the need to, and actually did make a pre end of financial year purchase for tax benefits, were you clear on the rationale for doing so?
If you weren’t clear at the time you made your decision, then now, as the dust settles, you might want to get clear.
Because there are a myriad of ways to capitalise on tax deductions and making a purchase is just one of them.
You own a business and you make a $1,000 purchase online at Officeworks, that Happy Tax Place on June 30 at 11.59pm.
That’s great. You could potentially claim a tax benefit of $300 (high five to you) because you can you write it off as an expense that falls under the $20,000 threshold.
But the $300 didn’t come for nothing. It actually cost you $700.
Now ask yourself these questions:
Was it worth it?
Did you need it?
Could that $700 have been used for something else? Maybe a bonus for a staff member or you?
Would you have been better off keeping that $700 in the bank?
Was doing nothing with the $700 an option?
This last one is well worth a little extra thought. And it is a thought that could drive more of our purchasing behaviour, particularly as we’re inundated with marketing that tells us to do otherwise.
As we launch into a new financial year, now is the time to be thinking about the kind of tax benefits to capitalise on when the calendar ticks over to 30 June in 2017.
This is thinking and acting smart, something which you can do all year round.
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