How to lower the amount of tax that you are required to pay in Australia
If you want to avoid missing out on the opportunity to save some money when it comes time to file your taxes, now is the ideal time to get your finances in order.
Putting aside some time now to get your finances in order can leave you with some unexpected extra savings in the future, despite the fact that filing taxes is not the most enjoyable task.
You will be able to keep more money in your pocket if you are able to discover how to claim and what to claim around tax time.
At the time of filing your taxes, there are ten simple actions that might be of assistance to you if you want to get ahead with your finances.
1. Keep detailed and accurate records
It is possible that you will experience a great deal of stress during tax season if you do not have a well-organized filing system for all of your financial information.
As stated by Sonia Gibson, Director of Accounting at Heart Chartered Accountants, it is imperative that you maintain any receipts, invoices, and contracts that you have accumulated throughout the course of the year.
She explained that if you do not maintain accurate records, you will not be able to submit a claim for a tax deduction to the Australian Taxation Office if you are unable to provide evidence of your expenditures.
2. Donate to charity.
If you are looking for a meaningful way to spend the money you have worked so hard to achieve, this could be the answer for you: giving to a charitable organisation.
You are eligible for a tax deduction for any donation that is larger than $2; however, this is only the case if the charity is registered as a tax deductible gift recipient.
“I have witnessed individuals who made donations to door knock appeals, but they did not receive a receipt, which prevented them from being able to claim their donation,” Ms. Gibson stated.
Consequently, if you do not have a receipt from the charity that verifies that they have received your donation and that it is tax deductible for at least two dollars, then you will not be able to claim your tax deduction.
3. Claim working from home deductions
The practice of working from home has become the standard for thousands of people in Australia, and there are a variety of ways to claim the hours worked when it comes time to file taxes.
According to Jacie Taylor, an independent financial advisor, it is recommended that you keep a record of your hours.
“Go through and work out the hours that you worked from home, and that can end up being quite a substantial amount that you get to claim and bring your taxable income down by,” she said. “This can end up being quite a substantial monetary amount.”
You have the ability to claim 52 cents for each hour that you worked from home if you use the fixed rate approach that is offered by the Australian Taxation Office.
Keeping a record of work-related expenses and operating costs is something that Ms. Gibson suggests doing in order to take advantage of any prospective tax deductions.
Consequently, the amount that you must provide on your tax return in order to be eligible for a tax reduction is equal to 52 cents multiplied by the number of hours that you work from home, as she said.
4. Get private health insurance
It is totally dependent on your own personal priorities and circumstances as to whether or not you require private health insurance; nonetheless, there may be tax implications for some individuals who do not have private health insurance.
The Medicare Levy Surcharge, often known as the MLS, is a tax penalty that is levied on those with higher incomes who do not have private hospital coverage yet have an income that is greater than a specific threshold.
In addition to the two percent Medicare Levy, which is a mandatory tax for all taxpayers regardless of their total taxable income (with certain exemptions), this surcharge amounts to an additional two percent.
Two income thresholds—one for singles and one for families—are used to determine the MLS, and the MLS grows over four different income tiers. It becomes applicable when the taxable income of a single individual is greater than $90,000 or when the combined income of a family is greater than $180,000. In the event that a family has two or more children who are dependent on them, the threshold for family income is raised by $1500 for each additional child after the initial one.
In order to avoid paying the MLS, individuals are strongly advised to acquire private hospital coverage, which can provide some savings for singles and couples when it comes time to file their taxes.
5. Contribute to your superannuation
In the weeks leading up to tax season, Ms. Taylor suggests that you examine your retirement plan and give some thought to the possibility of making concessional contributions to your account, which will be subject to a tax rate of only 15%.
A person with a yearly income of $100,000, for instance, is subject to a tax rate of 34.5%, which includes the Medicare payroll tax.
Therefore, if you were to make a concessional payment by contributing $5,000, the sum would be taxed at 15% rather than 34.5%, which would result in a savings of $975 for you.
Ms. Taylor went on to say that making these concessional contributions in addition reduces the total amount of income that is subject to taxation.
According to her, “If you have extra money lying around, you can put that money into your superannuation account and then claim a tax deduction for it.”
“For instance, if you have an extra $5,000 lying around and you put that into your retirement account, rather than having a taxable income of $100,000, it would only be $95,000,” she explained.
The primary limitation is that you are only allowed to contribute a total of $27,500 year, which includes the 10% contribution that your employer puts in as well as any personal contributions that you make.
6. Complete additional training and learning
When it comes time to file your taxes, you might want to think about enhancing your skills through professional development and training.
According to Ms. Gibson, “the training must be for the purpose of maintaining or increasing your knowledge or skills in order to earn income in your current employment; it cannot be for the purpose of changing occupation or employment.”
Subscribing to professional periodicals or groups for your field gives you the opportunity to claim a tax reduction. However, you must ensure that you have a document to back up your claim in order to demonstrate that you have incurred the expense.
7.Chose who to invest assets under
If you are in a relationship, it is important to think about who you will invest your next asset under in order to reduce the amount of taxes you will have to pay.
Investing in the name of the partner with the lesser income is something that Ms. Taylor suggests doing because that partner will be subject to a reduced marginal rate of taxation on the asset.
When she was asked about investments, she stated, “If you are going to invest in some shares, for example, then it is typically better to invest in their name so that they pay tax on the interest at that lower rate.”
8. Chose wisely when to sell assets
Whenever you are considering selling an asset, you should give some thought to the fiscal year in which you will put it up for sale on the market.
To reduce the amount of taxes you have to pay, Ms. Taylor suggests delaying the sale of your property until the following year if you have a higher income in the current fiscal year and are aware that your income will be lower the following year.
“You want to smooth out the amount of income you get because the gain you get from selling your asset can be taxable,” Ms. Taylor said. “If you know that you are not going to have the same high income the following year, then you want to smooth out the amount of income you get.”
9. Make a claim for all of your work purchases
If you keep a record of all of your purchases, you will be able to claim them when it comes time to file your taxes, even if you did not use them for work-related purposes exclusively.
“You can only claim thirty percent of the costs,” Ms. Taylor explained, “if you purchased something and seventy percent of the time it was used for personal use but thirty percent of the time it was used for work.”
When it comes to protective apparel, the expenditure of maintaining this clothing through laundering is also tax deductible, provided that proof of purchase is provided.
10. Seek the counsel of a professional.
When it comes to organising your finances, it is essential to seek guidance that is individualised to your specific circumstances and the long-term financial objectives you wish to achieve.
The fact that something is tax deductible for one individual may not necessarily be deductible for another person, as Ms. Gibson pointed out.
She advised, “Get your own advice because there are a lot of myths about what qualifies as a deductible expense and what does not.”
Preparing for tax season in Australia can be daunting, but with careful planning and attention to detail, you can significantly reduce your tax burden. By following the ten strategies outlined here, including keeping meticulous records, maximizing deductions, and seeking professional advice, you can ensure that you’re making the most of available opportunities to lower your tax bill and optimize your financial situation.
