Tax Time is often a time of the year many people dread. It can be painful and exhausting spending hours collating all of the documentation that is required to lodge your tax return.
Receipts, income statements, dividend statements, you name it… The list goes on. The light at the end of the tunnel for many people at tax time is the juicy tax refund that they get at the end.
But many people sabotage themselves by not doing their due diligence when filing their tax return. There are several ways you can ensure that you are getting as big a tax refund as possible, legally.
I am not a financial advisor and this is not financial advice. I encourage you to do your own research before making financial decisions.
Claim All Work Related Expenses
All work related expenses are tax deductible, so make sure you keep a record of all of these and claim them. According to the ATO, a work related expense is an expense that:
- Must directly relate to the earning of income
- You must have spent the money yourself and not be reimbursed
- Must be proven via a record (usually a receipt)
Let’s take a look at some common and some not so common work related expenses that you could possibly claim at tax time.
Work Clothing: The cost to buy, rent or maintain work clothing can be claimed as a tax deduction. Protective clothing, compulsory uniform and occupation specific clothing can all be claimed, however, non compulsory work clothing cannot.
Written evidence will need to be provided showing that you purchased the clothing as well as how much you spent. Further to this, all costs to wash, dry and iron your work clothing can be claimed, regardless of whether it was purchased by you or your workplace.
Working From Home Expenses: As a result of the outbreak of COVID-19 around the world, many businesses around the world have implemented working from home. Have you spent time working from home as a result of the pandemic? If so, great! Chance are there are a number of working from home expenses that you can claim.
First off, to claim working from home expenses the ATO states that you must be “working from home to fulfil your employment duties, not just carrying out minimal tasks such as occasionally checking emails” and that you must incur “additional expenses as a result of working from home”.
Some home office expenses that you can claim include: heating, cooling and lighting expenses (only for times when working), home office equipment, depreciation of home office equipment and work related phone expenses.
Tools & Equipment: Assets purchased to help earn employment income are tax deductible. A list of common tools and equipment used to do so are: hand tools, power tools, desks, computers, safety equipment & protective equipment.
For assets costing under $300, the full amount can be claimed. For assets over $300, you can claim the cost over the life time of the item.
Other: Now that we have covered the most common claim areas, let’s take a look at some lesser known areas in which you can claim. The below expenses can also be claimed:
- Bad Debts
- Phone, Data & Internet Expenses
- Glasses & Contact Lenses
- Income Protection Insurance
- Self Education
- Working with Children Checks
Did you know that in some cases gifts or donations can be tax deductible? If you’ve made a donation in the past 12 months you should check to see if the organisation that you donated to has the DGR status (deductible gift recipient).
There are a lot of variables in claiming donations so I suggest you check out the ATO’s explanation on how they work here.
Some basic rules include that the gift or donation must be to a DGR, must truly be a gift or donation, and must be of money or property.
Capital Loss Events
Just as capital gains are taxable, capital losses can be used to offset a capital gain. For those unaware, a capital loss is when an investment decreases in value. For example, if you buy $10,000 worth of shares and sell them a year later for $9,000, you have made a capital loss of $1,000 which can be offset against a capital gain.
It should be noted however, that capital losses do not reduce taxable income. Instead they can reduce capital gains made. It is common for those without capital gains to defer a capital loss until a period where they incur a capital gain.
Have you made a contribution over the past 12 months? If you have it may be tax deductible. This deduction will not apply to compulsory contributions made by your employer , but only to personal contributions.
In Australia, you have a concessional contributions cap which is at the time of writing $27,500. As per the ATO, concessional contributions are contributions made into your super account before tax. They are taxed at 15%.
Take care not to go over your cap as if you do, your contributions will be taxed at a higher rate.
Use a Tax Agent
Should you complete your own tax return or get a tax agent to do it for you? Well it depends on a few variables. How well do you understand the tax system and its intricacies, do you have multiple incomes, do you have a large number of tax deductions? It really all depends on your personal circumstances.
Whilst you may be perfectly able to complete your own tax return on your own, chances are a qualified tax agent will always be able to pick up a few areas that you may have missed to help you get a bigger tax return.
In more cases than not, you are likely to benefit from the expertise of a tax agent.
Complete your Tax Return
It may seem like stating the obvious, but not completing your tax return is a sure fire way to not get a tax refund. Every year thousands simply forget to lodge their tax returns or refuse to do so through ignorance. No tax return = no tax refund.
Better yet, by not lodging your tax refund your risk being fined by the ATO and gaining a criminal record. So make sure you lodge your tax return by its due date!
The key to tax time is often to stay organised throughout the year. You can use the ATO’s myDeductions Tool to help you keep track of all expenses throughout the year.
Achieving a tax refund, or minimising your tax payable boils down to ensuring you reduce your taxable income by as much as possible. This is done by reporting absolutely every possible deduction and offset that applies to you.
By being thorough and doing your due diligence at tax time, you can save hundreds or thousands of dollars which you can spend however you want. Whilst of course tax is important to our society, minimising the tax you pay, legally, is a key principle in the world of personal finance and will help you on your journey towards achieivng financial independence.