Are end of year financial sales worth spending your money on?

by Mike on June 11, 2014

Are end of year financial sales worth spending your money on?

The 30th of June is considered the end of a financial year for most nations and like most years I am sure you have all seen the marketing hype telling you we all need to spend money in order to save on tax. Perhaps we do need to consider spending that last bit of our IT budget on some new hardware or whether there any money left in the marketing fund? But shopping for the sake of end of year Savings? Just do a search for “end of year financial sale” and check how many pages there are. Yes that’s 195 Million results. So in reality are we better off spending money at the end of each financial year? Should we hold onto our cash? Will your tax return be that little bit better off? Have you even spoken to your accountant?

 Do you believe the EOFY Hype?

Most of you are probably too busy filling out paper work the closer we get to end of financial year to really pay attention to the marketing and advertisements. But for many of us it catches our attention and often triggers the spending reaction without thought. Its pretty obvious to me (especially as I worked in retail) that with the end of the financial year approaching fast most retail and sales based businesses will spin up some marketing deals to reach their sales goals.  This will often mean a lot of discounts and hype such as tax savings to entice you to finally make that purchase you were going to leave till July 1st.

For many of us we are “Ad blind” to things like TV commercials or billboards and yet at this time of the year it seems our attention is gained by all this EOFY hype and we often act without the usual conscious thought. Are you one of these people?

So whats that about my Tax bill?

Before you decide whether this month is the best time to spend or not let’s go over some factors that you need to consider.

Many of the items you can possibly buy to affect your tax return you actually need to be very careful about. For example buying a new car at just the right time can save you a lot especially when dealers are giving out end of financial year discounts.  You do have to be careful with hidden fees or payment terms that will end up making you pay more in the end and souring the deal. One of the biggest factors here is that in many countries you have to understand that cars are considered capital goods which will generate very little tax benefit.  You can’t claim a tax deduction for the full cost but can only claim the depreciation.

Take for example IT equipment. Working in this industry I can tell you here in Australia you get to claim only 1/3 of your IT purchase if this is made before the end of financial year. You get to claim a depreciated amount in the second year and its effectively worth nothing the final year. So if you spent $1000 on a laptop you might manage to claim a “Tax benefit” of about $333 this year. But this only really helps you if it allows you to drop your taxable income below one of the thresholds by reducing your overall taxable amount. Otherwise you are spending a dollar to “Potentially” get back 33 cents or perhaps nothing at all if it doesn’t change your tax threshold at all.

Starting to see the real story  behind end of year financial sales?

 So will you be spending this June?

For many large organizations that work from a yearly budget sometimes they do need to spend the money or they lose it. For the rest of us small business owners often the end of year financial sale is a hype designed to trigger your “sales frenzy” emotions. My advice is to please take the time to consider the price and the total discount you might get when buying items regardless of the tax deduction. The tax deduction should be at best a bonus not the reason for the purchase in the first place.

I have spoken before about a pre-tax return evaluation which can be done roughly in February. This allows your accountant to forecast where your going to end up and make suggestions with enough time to act on them. Not panic at the last minute and spend money on something you dont need with 48 hours to go in June!

So will the end of the financial year be beneficial for you to go on a buying spree or are you just falling into a marketing trap?

Please note I am not a tax accountant and dont pretend to be. I am sharing my experiences in retail trade and in small business to get you to start to think and ask the right questions of your own Tax professional.

 

Know someone spending because they think it will save them now? Gone and gotten you own great tax advice? Leave us a comment and dont forget sharing is caring!

 

***Photo thanks to Mark Hillary***

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