With just a few days to go until the end of the tax year, the more organised among us will be spending some time getting their financial affairs in order so that the process of completing their tax return is as smooth as possible. Here are my tips to help lighten the tax time load.
- Claim the instant asset write-off
If you run a small business, it makes sense to take maximum advantage of the $20,000 instant asset write-off. This allows you to claim an immediate tax deduction for all capital purchases costing less than $20,000, rather than depreciating the cost over several years, as used to happen.
This is great for tech items such as computers, tablets and phones, as well as tools and equipment for tradies, office furniture and even motor vehicles.
- Claim what you’re entitled to…
You’re entitled to claim a deduction for any expense which you incurred in earning your income and which wasn’t reimbursed by your employer. So, if you have incurred a work-related expense, and you have the paperwork to prove it, don’t hesitate to claim it. Amongst the common deductions many taxpayers claim are:
- Costs of using your own car for work. This doesn’t include driving to and from work but it does include visiting clients or suppliers, and driving from one work-site to another
- Costs of travelling for work. If you are required to work away from home, and you incur costs on meals and accommodation, those costs are deductible up to the amount you actually spent. If your employer pays you an allowance to cover your traveling costs, that allowance is taxable
- Costs of tools and other equipment. Whether it’s the cost of tools if you are a tradie, or the cost of a new computer, laptop or mobile phone if you are office-based, if you spend it, you can claim it, provided it’s used for work purposes (if it’s used partly for work and partly for private use, you can only claim the work-related proportion). Items costing $300 or less are deducible in full, immediately. Items costing more than $300 are deductible over several years.
- Cost of working from home. If you spend some of your time working from a home office, a portion of your home-running expenses may be claimed as a tax deduction. The expenses that you may be able to claim include the work-related portion of:
- heating, cooling and lighting of the home office room
- decline in value of home office furniture and fittings
- decline in value of office equipment and computers
- computer consumables, stationery, telephone and internet costs
- If you’re undertaking a work-related course, you may be able the claim the costs of course fees – along with textbooks, accommodation and meals if you study away from home. You can also claim the costs of computer consumables and home internet as well as depreciation cost of the computer used for studying. Bear in mind these course conditions:
- the course must have a sufficient connection to your current employment
- the course must improve specific skills or knowledge required in your current employment
- the course must be likely to result in, an increase in your income from your current employment
A good tax accountant will be able to tell you exactly what you can and can’t claim, minimising the chances of an audit at a later date.
- But don’t embellish deductions….
You can only claim what you’ve spent. So, don’t inflate deductions in order to get a bigger refund and only claim for work-related costs you can prove you spent, by producing an invoice, receipt or bank statement for instance.
This year, self-lodgers using the ATO’s myTax program will be monitored as they prepare their return by the ATO’s computer systems to ensure they’re not over-claiming. The ATO will compare your claims to those of others like you and if your claim rings alarm bells, myTax will give you a stern warning inviting you to rethink that deduction. Ignore that message, and you could be headed for an audit!
The ATO have already flagged that they’ll be cracking down on dodgy deductions for work-related expenses this year so if you want to avoid a possible tax audit, make sure you only claim what you’re entitled to.
- Gather written evidence
Make sure you have written evidence, such as receipts, invoices and bank or credit card statements, for everything you intend to claim.
- Get help!
There’s a reason 74% of Australians use a tax agent to prepare their tax return; tax is complicated! Get your tax return wrong and the comeback is on you, either with a lower refund or ATO penalties.
Most people find it far less stressful to simply pass on all their information to a tax agent and leave it to the agent to complete their return, safe in the knowledge that the return will be accurate and complete. An experienced agent will usually be good at sniffing out those obscure tax deductions you didn’t know you could claim so they can often pay for themselves several times over. Best of all, the tax agent’s fee is also tax deductible!
Mark Chapman is the Director of Tax Communications at H&R Block