How to Use Your Tax Return to Create More Wealth
Tax time is a great opportunity for property investors. It allows you to get money back and put it to work creating more wealth. And it’s important to take action early, because inflation means that every day a dollar is available to you and you don’t used it to invest, it’s worth less than the day before. So, what do you need to focus on at the end of the financial year?
Know your deductions
The right or wrong decisions can mean thousands of dollars in difference right now, the effects of which can compound even further in future years. So, first things first, make sure you know what you are entitled to deduct. Things like depreciation, for example, can be confusing. And if you don’t know what to claim, it could cost you thousands over the years.
Some B Invested clients have earned work income of $250,000 in a financial year and ended up paying tax on less than $100,000, because they knew what to deduct. You can make large tax deductions without having to buy a negatively geared property or a new property. So, it’s important to have the right strategy where your assets are helping you reduce your tax while you build the larger portfolio.
Get the right help
A big part of that strategy should be to engage the best professionals to help you. The best place to start is with an accountant who understands your plans, goals and strategy. Say you want to build a 10-property portfolio for example. An accountant who knows this might give you different advice or structure your tax in a different way than one who thought you were happy to leave it at one investment property.
It takes a very good accountant to be able to maximise your deductions, while leaving your borrowing capacity intact, so that you can continue to purchase assets while getting decent tax returns.
Early bird gets the return
Back in the days when B Invested founder Nathan Birch was still working for someone else for a salary, he would claim his tax return on the first possible day he could. That meant he would have extra capital in his pocket to go and purchase more assets. Back then, he was in acquisition mode for his portfolio and was always looking for the next injection of capital to direct to a new asset.
He knew what a lot of others may not realise, a good tax return can actually equal your next investment deposit, or at least go a long way towards one.
When you think about inflation, the hard truth is that every day, cash is worth less than it was the day before. So, while the amount of money you will get from your tax return might not change as you wait to access it, its value certainly will. The sooner you access it and direct it into a growth asset, the more you are maximising your tax return. You might get your return back before the end of July, use it for a deposit on an undervalued property and find you’ve made some equity, all while the average Joes of Australia are putting off doing their taxes until the October cut-off date.
Learn lessons for next year
Once you have done your tax return for the current financial year, think about what you may have missed out on. What could you have done throughout the year to improve your situation when July rolled around? Reflecting on these things will mean you can put them into action now to maximise next year’s tax return.
Are you expecting a bigger than average income for the next year? Or even a smaller one? Talk to your accountant, you may be able to bring forward or defer certain payments to get the income to where you want it to be. You should spend the whole financial year adopting certain practices that will benefit you the following July. If you need help figuring out what your strategy looks like or you need more information, reach out to the Investor Relations team at B.Invested.