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How to avoid the 8 most common tax return mistakes

The tax traps to avoid this tax season. (Source: Getty)

If you were thinking of pulling a fast one on the tax man, forget about it: you’re unlikely to get past them.

That’s because the Australian Taxation Office is used to seeing the same mistakes by taxpayers every year – so it pays to know what they are, so you don’t get caught on their bad side.

Here are the most common tax return pitfalls, and what not to do:

1. Trying to claim too much

Of the some-13 million Australians readying to lodge a tax return over the coming three months, some will attempt to claim more than they ought to. But according to H&R Block’s Mark Chapman, only claim what you’ve actually spent.

“Don’t inflate deductions in order to get a bigger refund and only claim for costs you can prove you spent, by producing an invoice, receipt or bank statement for instance,” he wrote in a post on the H&R Block website.

So don’t exaggerate your claims for bills like home internet that you also use for work. “Remember, you also use the internet to watch Netflix and you may live with other people (spouse, children, housemates) who also use the internet!”

Don’t try to claim for anything you never paid for, either.

The ATO’s systems compare claims like yours with people similar to you and will issue you a warning to rethink your deductions if they don’t seem to check out. And if you ignore that warning, you could get audited by the ATO.

What can you claim in your tax return in 2020? Here are all the deductions you can claim.

2. Not claiming enough

By the same token, you don’t want to accidentally miss out on a bigger tax refund. Here are the most commonly-forgotten deductions:

  • Work-related car expenses

  • Home office expenses

  • Mobile phone

  • Income protection

  • Union fees and donations

  • Self-education expenses

  • Sunglasses, if required to work outside for long periods

  • Laundry expenses for occupation-specific clothing

  • Tax agent fees

  • Medical fees

3. Not keeping track of your work-from-home hours

One difference with your tax return this year is that thousands of Australians will be able to claim hours worked from home.

Given thousands of Australians will be making this deduction for the first time, the ATO has made this very easy with its ‘shortcut’ method where you can claim 80 cents per hour worked from home. If you prefer the old-school way, that’s available to you too.

4. Not keeping track of your receipts

If you can’t back up your claims with receipts or invoices, you won’t get very far by way of seeing some of that money back.

“Around half of the adjustments we make are because the taxpayer had no records, or they were poor quality,” said ATO assistant commissioner Kath Anderson.

“Yet it’s so easy to keep your records, using the myDeductions tool in the ATO app. Just take a photo, record a few details and then at the end of the year upload the information to your agent or to myTax.”

5. Relying too much on pre-filled data

A lot of your info will be pre-filled by the ATO’s systems – but Chapman advises taking care and avoiding assuming all the information is correct.

“Always use your own information (payment summaries, etc) as the key source data. Some people assume that because the data comes from the ATO, it must be right. That’s a dangerous assumption,” he said.

If the information is wrong, it’s ultimately on you. “If you omit income and get questioned by the ATO, the legal burden will be on you, even though you’ve taken the information straight from the ATO’s pre-filled data.”

6. Forgetting the basics

Did you get married and change your last name? Have you moved to a new address? Don’t let your tax return be held up over basic mistakes.

Make sure your basic personal details are correct; ensure your bank details are correct; and double-check for spelling mistakes, just to be sure.

7. Declaring your income wrongly

According to etax.com.au, don’t guess or estimate your income and tax paid, because the ATO has records or this or can see your accounts.

“All your entries must be correct and complete. Just a few out of place dollars can attract the ATO’s attention.” So make sure you don’t forget about any additional income on the side, like overseas income, or any side gigs you picked up over the financial year.

“A temp job, cash jobs, capital gains on cryptocurrency, or money earned from the sharing economy is all income that must be declared,” said Anderson.

Even a one-off payment will be enough to raise a red flag, she added.

“We amend returns for thousands of taxpayers that leave out some of their income. This can delay your refund or even see you owing money to the ATO. If you wait until mid-August, we will have pre-filled most of your income information for you, to help you get it right to start with.”

Things you want to declare are money from third parties; interest from bank accounts; pension payments; and PAYG summaries.

8. Not getting a tax agent

If your tax affairs are a little more complex than most, or you’d rather leave it to the professionals, call in the services of a tax agent.

Not only will they be able to help you get more back in your tax return, but your tax return can be due later, too, as late as May 2021. An additional sweetener: the agent’s fee is tax deductible.

Made a mistake in your tax return?

Don’t panic – and that's advice from the ATO itself.

“We know people sometimes make mistakes or forget to include something on their return. If you’re in that situation, try to fix it as soon as you can to minimise any interest and penalties. Either contact your agent or lodge an amendment online,” said Anderson.

“Remember: Whether you use a tax agent or lodge it yourself, you are responsible for the claims you make.

“Take the time to check your deductions are legitimate and you have listed all your income before lodging.”

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