Buy a Porsche to reduce your tax? (Deductions, deductions, deductions)
It’s heading towards June, there’s a few months left before the financial year is wrapped up. Maybe it’s been a good year and you have a suspicion the ATO is planning to send you a hefty invoice for all the good work you’ve done. Mr taxman always forgets to say thank-you, doesn’t he!?
Seeing there’s only a few months left before lock-out, you wonder what you can do now to minimize the bill. As old mate Kerry Packer once said “Of course I’m minimising my tax. If anybody in this country doesn’t minimise their tax they want their head read.”
As a rule of thumb, deductions reduce your taxable income and the lower your taxable income, the less income tax you pay. Simple.
So, it’s time to grab the credit card and let loose on all the work-related deductions with the energy of an under 8’s footy team powered by red cordial (no water added) right? Well, no. Before you start skulling the raspberry flavoured Cottees allow me to impart a little strategic advice…
Deductions reduce your tax bill by your marginal tax rate. For example, if you’re in the 32% tax bracket (taxable income between $37k to $90k) every dollar you spend in claimable deductions will save you 32c in tax. The lower your tax bracket, the less tax saving you’ll get.
Every $100 you spend on claimable deductions will save you $32 in tax, but more importantly, will leave you $68 out of pocket. Ouch.
The point I’m getting at is that spending your hard-earned money on claimable deductions just for the sake of having more deductions doesn’t make much sense. Unless you really like work and don’t like money.
Where it does make sense however, is if you are required to spend money on those things anyway.
If work requires you to drive from one site to another, then claim your car – ask your Highview accountant how best to do this, and if you need a log book, do it now!
If you have to call clients all the time on the phone you pay for, yes claim a percentage of that too.
If you’re a barber, you’ll have a hard time cutting hair without scissors. So, buy them and claim them.
However, should you upgrade your car just so you can claim more depreciation? Probably not.
If the car you have now is reliable, cheap to run and is fit for purpose, it might not yield you the biggest refund but you’re going to end up with more money in your pocket. Albeit with a less cool car in the garage.
I can already hear it now – “James that’s boring, have you even seen the latest Porsche?” Oh, believe me I have. But I’m an accountant so I’m wired to give the boring, practical advice.
At the end of the day, as much as I’d like you to buy ‘all the things’ so I can give you a huge refund (and I look like a Rockstar accountant) I’d prefer that you were able to keep more of your hard earned money in your pocket and put it towards something more important to you than things for work.
However, if you did buy something this year and you think it might be tax deductible, ask your Highview accountant, believe me, we love talking about deductions.
(some childhood dreams were harmed in the making of this article, I’ll go take that 911 GT3 poster off my bedroom wall now).
If you’d like to chat with James about your upcoming tax, you can contact him at our Mornington office on 03 5911 2100 or email james@highview.com.au
Article written by James Wrigley, Senior Accountant from Highview Accounting & Financial Mornington.