It pays to know about your income tax and what to do to reduce what you pay or even increase what you claim because no one needs to shell out more tax than required.
- Keep records
One of the simplest things you can do is set up a checklist. It’s about being organised throughout the year, so file as many electronic receipts as you can, including downloading internet banking interest income details, dividend income statements and share sales. Use your mobile phone to scan paper receipts or ask for an emailed electronic copy. Keeping good records is the top way to ensure you claim every expense.
- Claim what you are entitled to
Claiming deductions is a great tool to reduce overall tax payable. The Australian Tax Office website releases ”reasonable” deductions for 20 different occupations and most accounting firms provide free lists tailored to all types of income you need to declare for your circumstance. If what you spend during the year relates to earning your income, keep all receipts to claim an apportioned deduction. For example, you can claim work-related expenses such as meals, travel, accommodation and depreciation on tools such as laptops, smartphones, home office furniture, home internet usage or even electricity and gas. If you are unsure of a claim, keep the receipt and at tax time ask your accountant for advice because the things the ATO allows you to claim change each year.
Did you know income protection insurance can be claimed as a work-related expense or that small work-related items worth up to $200 can be claimed without receipts? Each item must be less than $10 [for example, stationery, USBs, paper, batteries, calculators] and requires a diary record showing the date the item was bought, where it was bought, and the cost. Don’t miss claiming travel to visit your tax agent. This includes motor vehicle travel, bus and taxi fares. If you take your own car and use the Cents Per Kilometre method, you may not need to keep receipts to make your claim.
- Be charitable
Your generosity may result in a tax benefit. Every donation over $2 made to a registered charity is subtracted from your taxable income, which means you get a percentage back. Plus planning ahead for your charitable contributions can assist in lowering your taxable income. For example, the strategy of making a large donation towards the end of the tax year may lower your overall tax bracket and therefore boost your tax return.
- Medicare levy surcharge and expenses offset
You can claim up to 20 per cent of your medical expenses after $1,500. There’s no limit to what can be offset over $1,500. If you do not hold a private insurance policy, as soon as your income exceeds $77,000 for singles or $154,000 for families, you will be required to pay a minimum of 1 per cent extra in the form of the Medicare Levy Surcharge, which is on top of the compulsory 1.5 per cent Medicare levy paid by most Australian taxpayers.
- Try salary packaging and adjust finances
If your company allows it, consider salary packaging any expenditures you can. You might be able to package items such as cars, superannuation, mobile phones or gym memberships using pre-tax dollars. Next, consider adjusting your finances to suit your circumstances. For example, if a couple invest funds in a short-term account earning interest, it is more beneficial to invest it in the name of the lowest income earner who will pay the least tax on it.
- PAYG tax payments
The ATO makes ABN holders and small businesses pay PAYG tax instalments. This occurs once you make in excess of around $70,000 per year, which means that every quarter they will demand approximately $1,400 in tax instalments. It is important to keep in mind that even if you’re not earning that much this year, you may have to pay in this manner because it is based off the previous year’s tax return.
- Timed expenses
If you know in advance you’re going to incur a large expense or deduction, choose which financial year you pay or purchase. For example, if you have a large expense which is tax deductible and your income for a particular year is going to push you up to the next tax threshold, it may be beneficial to pay or buy then. This will lower your taxable income and could even move you down into a lower tax bracket.
Making an investment can be tax effective. However, speak to a financial adviser before you invest to check whether the investment complies with tax rules. The investment should benefit you now and into the future.
- Selling assets, claiming deductions
If you plan to sell one of your assets which may be subject to capital gains, there are a number of things to consider. If you have owned the asset for longer than 12 months, you may be entitled to a 50 per cent CGT discount. And, you may choose to sell the asset in a year you expect to earn lower income as your capital gain won’t have as big an impact of your tax liability. You can also claim deductions such as building depreciation on a property investment.
- Seek professional advice
Using a tax agent or accountant saves time and improves your refund. ATO statistics show 70 per cent of Australians use professionals because their job is to help you steer clear of tax problems and help you to pay less tax. The rule of thumb is to file as early as possible if you’re going to be getting a refund, and as late as possible if you owe money.
Allied Investment Group specialises in helping clients take control of their finances so they can have more choices, freedom and security in retirement. Call 1300 886 149 to put your plan in place.