Our accountants at Lockwood & Ward have come up with the 10 easiest ways that you can pay less tax. Here’s how you could save big dollars throughout the financial year.
Keep good tax records
Tax deduction claims need to be paired with receipts that you can present to the ATO. You are legally obliged to keep track of those receipts, it’s also the best way for you to remember everything that you can claim later on.
Keeping good records is the number one way to make sure you claim every expense you are entitled to. Though it may seem tedious, record keeping doesn’t have to be a headache. Try putting five minutes aside each week to file all your receipts in a folder (or save them online) and update your logbooks. We find that doing this will save a whole lot of stress at the end of financial year – and again, it’ll help you pay less tax!
Seek advice from tax professionals
At Lockwood and Ward we are experts in tax and keep up-to-date with tax laws and changes. Often we find clients are entitled to deductions they were unaware of. We also find that our accountants spot and correct little mistakes that could slow down your refund, or worse, that could cause an ATO reassessment or audit later down the track.
Claim what you are entitled to claim
Claiming work-related expenses is a great way to increase your tax refund and pay less tax. If you have to spend money during the year and it relates to earning your income, like travel expenses, then keep the receipt and make sure you claim a deduction for what you are entitled to. Even if the item was only partly for work, you can still claim an apportioned deduction.
If you are not sure whether you can claim a particular item, keep the receipt and ask us later when you come in for your personal income tax return. Remember, it’s safer to keep a receipt and not claim it, than to throw it out and find you could have included it on your return!
Be charitable
Did you know that every donation you make to a registered charity that is over $2 is tax deductible? Hold on to your donation receipts and during tax time, add them up and claim it as a tax deduction for the preceding financial year.
One thing we should mention is that your donations don’t come straight back onto your tax refund. Instead, they are subtracted from your taxable income, which means you get a percentage back (depending on your income and taxation rate).
Medicare levy surcharge
The Medicare Levy Surcharge is an additional 1% charge applied to singles with an income of $90,000 or couples with an income of $180,000. This surcharge is applied on top of the compulsory 1.5% Medicare Levy paid by most tax payers. To avoid this extra 1%, get yourself a private health insurance policy and take care of your finances and your health.
Typically the cost of taking out private health insurance will cost less than the 1% of the gross income you will be required to pay when completing your tax return.
YOU control the timing of your tax-deductible expenses
If you know in advance that you will have large tax-deductible expenses, sometimes it’s best to plan which financial year to purchase them in. Depending on your expected levels of income or deductions you may want to reassess when you purchase the item.
For example, if you have a large expense that is tax deductible and your income for a particular year is going to bump you up to the next tax threshold, it may be best to purchase your item right then. This will lower your taxable income for that year and could possibly move you down into a lower tax bracket.
Alternatively, in a year that you took an extended holiday or unpaid leave and your income was lower, it may be more favourable to delay any purchases of larger tax deductible items until the following financial year when your income returns to high levels. Doing this should help you reduce tax paid on the higher tax bracket and even save more money than if the item was purchased when you were in a lower tax bracket.
Don’t skip the small things
Whether your deduction is $1, $10 or $100, it all adds up! Ensure you keep all of your receipts, no matter how small they are and you will have the best opportunity for maximising your refund.
Investments
Sometimes making an investment can also help you reduce tax, depending on your individual finances or circumstances. However, this isn’t the case for everyone. Before you decide to invest, speak to our in-house financial planner who can advise whether an investment will suit you. Remember, the investment should benefit you both now and in the future.
Adjust finances based upon circumstances
If you and your partner are looking for a way to adjust your finances, the first place to start is looking at interest income earned on any savings. For example, if you and your partner have funds in a short-term account which is currently earning interest, your best bet is to put the account in the name of the lowest income earner. The lower the income the less tax will need to be paid on the interest earned.
Selling Assets
If you plan to sell one of your assets which may be subject to Capital Gains Tax, there are a number of things to keep in mind. One thing to remember is that if you have owned the asset for more than twelve months, you may be entitled to a 50% Capital Gains discount. You may also plan to sell the asset in a year you are expecting a lower income as your capital gain won’t have as big of an impact on your tax liability.
Do you have any other methods you use to reduce tax and maximise your refund? We’d love to hear them. For help with your personal income tax, give us a call on 02 9299 7044 or if you prefer email us on admin@lockwood.com.au.