Wednesday, June 24, 2015

End of Year Tax Advice



THIS ISN’T TAX ADVICE AND WHILE IT MAY BE PHRASED AS ADVICE THE COLLOQUIAL LANGUAGE ALONE SHOULD BE INDICATIVE OF PERSONAL COMMENTARY. AGAIN, NOT ADVICE.

I’ve been in the tax game for quite a while now and the two main things I’ve learned are:

- You can’t avoid tax; and
- Everything you -CAN- do to minimise tax involves spending money; ALSO
- Sweet Jesus tax is fucking boring (a third thing I discovered).

This time every year I see multiple articles and emails everywhere about how to save on tax. Like some smuck, I ignore the points above and go click on these links to see if I’ve somehow missed some holy grail of tax planning. Make no mistake, these articles are about as fucking useful as a Nigerian scam email. In reality there are only a few steps to follow:

Get an effective structure sorted with an accountant (we are all about as good as each other, choose whichever one you feel you can talk to). This involves the accountant knowing shit about you, your business and your future – expect to spend money on this. Then at the end of each year, and while still on track with the original plan, work out if you have available cash or sources of finance to spend on business related deductions, but never chase deductions purely for the sake of it. That is it. If you don’t have available cashflow then accept your fate, if you do then splash out on deductions.

I’m going to reiterate the important point above; NEVER CHASE DEDUCTIONS. We are talking entirely about excess, entirely useless and superfluous spending. Should I buy a new computer? A car? A boat? I’ve been asked all these questions and my answer is to ask them if they need it for the business. If it isn’t a requirement, don’t use tax deductibility as a basis for the purchase. You are likely in the 30-40% tax range on average which means the tax deduction is only worth 30-40% of the cost of the purchase (maths? FUCK!). The remaining 60-70% is pissed right against a wall. Unless it’s a boat, they are awesome. You should totally buy one.

I still hear pub talk about some rich dentist or business owner who is doing so well that his accountant told him to go out and buy a new car or something. Firstly, that story never happened. Secondly, if it did happen his accountant provided advice so utterly pointless to tax minimisation that I phrase it as fucking moronic. Thirdly, that story never happened. In fact I’ve now got a banner printed above my desk summarising this and every time a client mentions a friend in a pub I pinch my brow and point at the banner.

While the ultimate solution to tax savings is spending money on deductions, this is also the ultimate problem. Most of the spending involves ‘stealing’ deductions from next year or in another way, deferring some of this year’s tax until next year. But what happens if you can’t do the same thing next year? You have less deductions (remember you used these up last year) and on top have the tax for that year in question. Depending on the values involved you may have created yourself a problem.

So, is the correct solution then to do nothing? Well no, firstly understand there is no holy grail. Secondly be aware of the impact you will be having on tax for this year and any year in the future. Pick the path that you are comfortable with and move forward fully understanding the consequences of each.

Tax planning is more about common sense and less about searching for white elephants. Save for that boat and you will have a happy life.

I’m not using this as an advertisement, I generally look for ways of doing less, not more. However, if you want to ever ask me a question, fuck it, I’m in. It’s what I do.

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