Opinion
Most tax tips in June won’t help you. But this one will
Paridhi Jain
Money contributorIsn’t it weird how the end of financial year rolls around every year just like Christmas and birthdays, but somehow it feels like an unwelcome surprise each time?
You start seeing tax-related headlines in June, and feel that familiar anxiety start to surface as you try to avoid thinking about your return. Honestly, you wish it would just disappear.
But, as Benjamin Franklin said: “Nothing can be said to be certain except death and taxes.”
The end of the financial year always feels like an unwelcome surprise, but it doesn’t have to be.Credit: Simon Letch
So, instead of fighting it, how can we organise ourselves so that the end of the financial year is something we feel prepared for? How can we reduce the stress of tax time?
Unfortunately, being prepared for tax time doesn’t start in June. It starts right at the beginning of the new financial year – on the first of July.
The reason why many people feel unprepared for tax time is because, psychologically, they don’t operate on the financial year, they operate on the calendar year.
Preparing for tax time in June is like New Year’s resolutions on December 1 in a mad panic to try and fit them in before the year ends.
For example, in January, you might have a renewed sense of motivation to start executing your plans for the year. These are plans you probably started thinking about well before January.
Before January, you may have already planned big events (vacations, celebrations) or big purchases (a property, car) or life changes (pursuing a new job, moving houses or countries).
Then, throughout the year, you slowly start to plan and execute the goals you set, for example researching venues for a party, or booking tickets for your vacation.
In December, you might start reflecting on how the year went, the progress you did or didn’t make, and how you can use those lessons to create a plan and goals for the next year.
So, whether consciously or not, you plan a lot of your life around the calendar year.
Now, compare that to how we operate throughout the financial year. How much do you factor the financial year into your planning and goal-setting for the year? Is that the sound of … crickets?
Yeah, that’s right. No one really thinks about the financial year until June (unless you’re an accountant, a savvy investor or a business owner). There is no thought given to the financial year until the last moment. So, when June rolls around, it brings with it a mild panic.
“What did I do this year?” “Was there anything tax-deductible?” “I can’t remember if I kept receipts.” “Should I have sacrificed into super earlier?”
You then spend a few months avoiding, and then finally doing, your taxes. Once taxes are lodged, you promptly forget about the financial year until next year.
Most people don’t treat EOFY as a year at all, instead considering it as a one-time annual event that comes and goes. But by June, you can’t change the decisions you made the other 11 months of the year – there’s little you can do to maximise tax efficiency that late in the game.
It would be like setting New Year’s resolutions on December 1, in a mad panic to try and fit them in before the year ended. That’s not going to go well, is it?
So, what’s the solution? It’s creating a mental shift to operate in two calendars: the calendar, and the financial year.
You don’t have to design your whole life around the financial year. But if you keep it in mind as you set goals and make plans, you’ll be more prepared come tax time, and you’ll also put yourself in the best position to maximise tax efficiency throughout the year.
For example:
- If you think you’ll get a pay raise from a promotion or a new job, could you put a portion of that extra money into voluntary contributions to super?
- If you’re planning to do some extra study or buy things for work, could you check with your employer if they’ll fund it or verify if it could be tax-deductible?
- If you’re planning to start investing for yourself or a member of your family, could you get advice to select the most appropriate way to structure your investments?
In essence, you’re going one step further with your goal setting to identify and plan for the potential financial implications. This way, instead of getting to June and trying to remember what happened (when you have little ability to change anything anyway), you do the planning in advance.
So, if you really want to make the most out of the financial year, the next few days aren’t just about the current financial year, but also planning ahead for the next one.
Paridhi Jain is the founder of SkilledSmart, which helps adults learn to manage, save and invest their money through financial education courses and classes.
- Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
For expert tips on how to save, invest and make the most of your money, delivered to your inbox every Sunday, sign up for our Real Money newsletter here.