I love a dress with pockets. They keep your receipts safe after you’ve spent money… today; let's chat tax deductions. Do you ask for a receipt in the hope your accountant says 'yes' to a tax deduction? It's nice to know that your spending could be of dual benefit, you get something pretty and pay a little less tax along the way.
What is a tax deduction? It means you pay less in tax, right? What could be so bad about that? A lot really. You may have heard the phrase: Oh it’s ok (I’ve spent money), I’ll get it all back in tax. Well sorry my friend, that’s not true.
Keeping technical speak to a minimum, only a certain part (or percentage) of what you spend reduces your tax at tax time. Not all of it. What's more this is only true if your spending relates to what you earn in wages or investment. If there’s no link, it’s not worth it.
In our business we spend money on paper and stationary and if that’s matched with the paper and stationary we give our financial planning clients then that’s ok. If I spend money on a personal flight with Townsville’s Red Baron, well then maybe not.
A tradie can benefit from buying power tools for their job, a beautician, make-up. But maybe not the other way around…hehe could you imagine!
Then let’s talk about spending for spending’s sake. Avoid the trap of ‘but my accountant says I can claim this on tax’. That’s well and good if you need a new [insert item here] but spending for a tax deduction (could actually be illegal) and means that your money cannot be used somewhere else. Gee, don’t get me started on all the other options for your money, try reading my other blogs on offset accounts and holidays!! These may not be as sexy as a new toy but so much better in the long run.
In short, like me, sometimes it is actually better to pay tax rather than to spend for spending’s sake. Once I pay tax the leftover is for me to use and enjoy. Yippee! And what could be better than that?