When it comes to tax deductions, everyone wants to know what they can claim to help reduce their taxable income. Whether it be travel expenses, professional development or claiming a home office, there are some simple rules you need to follow to ensure that what you claim for work is legitimate.
Deductions you can claim
According to the Australian Taxation Office (ATO), there are three things you need to abide by in order to claim a work-related deduction:
- You must have spent the money yourself and weren’t reimbursed;
- It must be directly related to earning your income; and
- You must have a record to prove it.
The ATO allows you to claim up to $300 for work related expenses without having kept any receipts – but you must have spent the money and it must be related to your current employment.
If the expense was for both work and private purposes, you can only claim a deduction for the work-related portion.
If the cost of any item is over $300, it will have to be depreciated (a portion of the cost claimed each year over its effective life).
The importance of a fantastic tax accountant
Taxation is a complicated and specialised area, and having an experienced accountant by your side can help you to navigate the ins and outs of your tax return. Not only can they save you a lot of hassle and research but they can also help you to plan for the year ahead – so when 1 July ticks over next year, you feel prepared and confident that you have taken practical steps to maximise your tax return.
The “tax trap” to avoid
Tax saving strategies generally involve you spending money on “something” to create a tax deduction. It is important however, not to fall into a common trap of spending money just to get a tax deduction. You only save tax based on the marginal tax rate proportion on the amount you spend, not the full amount you spend.
For example, if you earn $85,000 a year, your marginal tax rate (including Medicare levy) is 34.5%. This means that any extra dollar you earn will be taxed at 34.5%, and any extra dollar you claim as a deduction will save you 34.5%.
So, if you spend $100 on something that you can claim a deduction for, you will get back $34.50 from the ATO, but it will still cost you $65.50. So only spend money on what you need, not just to create extra tax deductions for yourself.
Links to more information about specific deductions
It’s our job as accountants to make tax time simple and easy – after all it’s what we do every day. Before you drop by to have your tax return lodged, we will provide you with an up-to-date checklist to make preparing for your visit hassle free. If you want to, you can also read up on some of the specific deductions – or just call us and ask!
Here are some handy links provided by the ATO:
- Clothing, laundry and dry-cleaning expenses
- Gifts and donations
- Home office expenses
- Interest, dividend and other investment income deductions
- Self-education expenses
- Tools, equipment and other equipment
- Vehicle and travel expenses (including travel between work and home)
- Other deductions
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GENERAL ADVICE WARNING | The information provided in this article is for general information purposes only. It is not intended to be, nor should it be read as specific taxation advice. Before acting on any of the information contained in this article you should obtain advice from a specialist advisor, which is appropriate to your specific business needs, objectives and financial situation.