Whether you're self-employed, a small business owner, contractor, consultant or freelancer, come EOFY your inbox is not immune. From June, inboxes and mailboxes alike are inundated with checklists and FOMO inducing facts, designed to make sure taxpayers make the most of EOFY.
In all the frivolity of EOFY, retailers are painting an unrealistic picture that spending $100 on an item you don't necessarily need will get you $100 back on your tax return. From our perspective, EOFY marketing is starting to get silly.
The bottom line is – if you don't need it, don't buy it. There's no tax deduction for irrelevant, impulse purchases.
It Starts With Irrelevant
For many retailers, EOFY has become an event. The difference between EOFY and other legitimate events like Christmas, stocktake sales, end of season and even back to school sales is that some retailers seriously over-egg the messaging. Aggressive promotion of potential deductions can lead some small business owners down the garden path, believing that the last minute splurge could save them money.
Capitalising on the message that lower profit = lower taxes can lead to late night splurging on unnecessary items, like a sofa for your home 'office,' a lawn mower for your dental practice or a hair dryer for your cafe.
If the small business is set to post a profit, it can make financial sense to pay for legitimate business expenses or equipment before the June 30 deadline. The grey area exists where small businesses, with little financial visibility, fall victim to an EOFY discount code, senselessly spending money on items they don't need or may not be legitimately claimable.
Small businesses with larger clients will be all too familiar with this scenario: around June, it's common that clients will ask to bill for work yet to be done. While getting paid for work you haven't done sounds like a win-win – think again. Bringing invoices forward inflates your earnings, and in some cases, leaves the small business with a higher profit and a larger taxable income. While an EOFY cash injection is usually most welcome, always check with your bookkeeper or accountant before agreeing to anything.
Bad Advice Costs
When it comes to EOFY, there's no one-size-fits-all advice. What works for you and your business might have disastrous implications for someone else. Following financial advice from a retailer encouraging you to spend on yourself, not the tax man, might not work out so well.
There's nothing wrong with planning for EOFY. In fact, we encourage small businesses and individuals alike, to be proactive about getting ready for tax time. What is wrong, is thinking the ATO won't realise the lawnmower you bought at 11:58pm on June 30 is not essential to the continued success of your business.
When it comes to EOFY, there's no room for rash decisions. In the lead up to tax time, check in with your accountant or bookkeeper to see how you're tracking and whether there's any legitimate advantage to bringing expenses or purchases forward.
For more information, find your nearest H&R Block office or call us at 13 23 25 today.
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