Everyone knows that feeling – when you get your tax return back and you think “Surely I should have gotten more than that?”
Most people invest a lot of their own time and money into earning their income. But not everyone takes full advantage of claiming that money back at tax time. It’s so easy to miss tax-saving opportunities when you do it yourself through the MyGov portal – and it’s just as easy to make a mistake.
Fortunately, Ezytaxback can offer you a simple solution, by connecting you with an experienced tax professional for an affordable fixed price. Our accountants are experts at getting the most out of your return, but there are a few good practices that you should follow to maximise your tax potential.
We’ve prepared some of the best tax tips to be aware of before you file. Taking these easy-to-implement steps before it’s too late can make a serious difference in your return.
1. Know what you can deduct. It’s the best way to legally maximise your return.
The best way to increase your tax savings is through deductions. Despite this, many people don’t take the opportunity. In 2018, for instance, more than 45% of young Australians aged between 25 and 34 failed to claim more than the $300 threshold in their tax returns. It doesn’t help that the MyGov portal makes it far from obvious
$300 is the amount that the Australian Tax Office (ATO) allows you to claim without receipts. It’s important to remember that you need to incur the cost and not be reimbursed by your employer to be eligible to claim it. Once you exceed $300, you must produce tax receipts for all tax expenses.
To maximise your refund, it’s worth spending some time getting to know the items you can and cannot claim for your particular industry or occupation. It’s also worth choosing which method you would like to use to calculate your deductions – the actual cost method, the fixed rate method or the shortcut method.
Each method has their advantages and disadvantages. For instance, the shortcut method was brought in for 2020-21 to make working-from-home calculations easier, because you just deduct 80c for every hour worked – but it limits what else you can claim. That’s why it’s important to think about your circumstances & your industry when you’re considering your deductions
2. Stay organised
Being organised really is the best way to avoid unnecessary stress when it comes to tax time.
A great tax savings tip is to keep copies and record transactions as they occur, and you will thank yourself come tax time. This will make both your own and your accountant’s life much easier.
Do you have a motor vehicle and travel more than 5,000kms for work? Keep a running logbook of your odometer readings for 12 consecutive weeks outlining work/personal trips. You can use this logbook for your online income tax return for up to 5 years later, so it’s totally worth investing some energy in!
Using a free tax calculator before you file is also a great way to stay on top of your tax. By getting an estimate of what your return might look like, you can see if anything doesn’t look right, and you’ll have an idea of what to expect at tax time.
3. Keep your employer informed
If you have a HECS/HELP debt and earn above $46,620 for the 2020-2021 financial year, you must begin to repay your loan via your online tax return.
It is important to know that this amount does not only include your taxable income for the year. For the purpose of calculating a HECS/HELP debt repayment, the ATO includes your taxable income plus any total net investment loss (which includes net rental losses), total reportable fringe benefits amounts, reportable super contributions and exempt foreign employment income.
A tax return tip is to inform your employer of your HECS/HELP debt, so they can withhold the appropriate additional amounts from your wage to cover the required repayments. This will help you avoid an unwanted tax debt at the end of the year.
4. Avoid simple mistakes
The tax system is complex, and making a mistake can be detrimental to your finances.
The most common mistake is overlooking the amounts earned from your financial institution account, i.e. interest income, which must be declared when lodging your online tax return.
Another common income tax return mistake is over-claiming deductions for holiday and residential rental properties, or failing to declare all rental income received.
5. Be honest about your side hustle.
This is our easiest tax return tip and it might sound like an obvious thing to do, but you’d be surprised how many people fail to do this, whether it’s accidental or on purpose. Inaccuracy is a common mistake, but one that should be avoided at all costs.
The pandemic changed how a lot of Australians worked or made money this year. But if you’ve made any money through less traditional means – like freelancing, crypto investment or the sharing economy – then you need to accurately report these activities on your return. Surprised to hear that there are tax obligations for Crypto? Read this article I published about what you need to watch out for.
The ATO has made it clear that they’ll be cracking down hard on side hustles and amateur investors this financial year, so don’t even think about not reporting it. You must include income from these ventures when you do your taxes.
6. Don’t leave it to the last minute
It’s good practice to not leave your online tax return until the last lodgement day. The best way to prepare your income tax return is to do it all in one go online and allocate enough time to make sure you are able to finalise it.
Depending on your situation, the time needed to finish your return will differ. One way of speeding up the process, as well as ensuring you are including everything correctly, is to hire a professional service like Ezytaxback.
7. Prepay your expenses
If you have some spare money coming to the end of the financial year, one thrifty tax-saving tip is to prepay certain expenses.
There may be expenses you are eligible to claim now, such as subscriptions for professional bodies/unions or magazines. If you have an investment property, prepay the insurance or even the interest on your loan.
You are entitled to claim a tax deduction for expenses that wholly or partly relate to the next financial year, as long as the payment was made before the 30th June of the current financial year.
8. Make a donation
Making a last-minute tax-deductible donation can boost your tax benefit leading up to the end of the financial year. Plus, you’ll be supporting a good cause and paying it forward to the less fortunate.
There’s no limit on how much you can donate (and claim!) as long as you can substantiate the donation with a receipt and the donation is made to a Deductible Gift Recipient (DGR).
Be aware that you can’t claim for donations that give you any form of benefit in return, such as charity raffle tickets.
9. Keep track of your receipts
Without tax receipts, you are only allowed to claim a total of $300 of work-related expenses. Therefore, keeping track of your expenses as well as receipts is the key to lodging an accurate online tax return.
If you are tech-savvy, there are plenty of smartphone apps that can be used to store all your receipts and expenses. Some even allow you to send a file directly to your accountant at income tax time!
10. Use a registered tax agent
Filing an individual claim with a registered tax agent like Ezytaxback will help ensure an accurate return and increase your tax savings. If you’re receiving this email, you’ve likely filed with us before – and we’d encourage you to choose us again.
There are so many benefits to using a registered tax agent. As Australia’s leading fixed fee tax agent, our service is affordable and easy to use. You’ll receive top-shelf advice from tax experts. We’re so confident that we can get the most out of every return that we offer a maximum refund guarantee.
Our highly experienced team will review your return before it reaches the ATO, to let you know about possible deductions you are missing out on before your return enters the system.
Before you go, don’t forget the golden rule for tax deductions: for an expense to be tax-deductible, there must be a clear relationship between your work-related expense and you earning your income. You can use our handy free tax calculator to help estimate your return now.
Disclaimer: This advice is general in nature and does not take into account your personal objectives, financial situation or needs. You should consider whether this advice is suitable for you and your personal circumstances before acting on it.