It’s that time of the year again! This is the season for dealing with a formidable foe – taxes! Doing your taxes might be stressful, however, despite being a constant itch, taxes have a bright side to them: Tax deductions.
Tax deductions include the amount permitted by the Australian Tax Office (ATO) to be subtracted from the income earned. The lower the net income, the lower the financial burden of tax payments. In a way, tax deductions avert the risk of overpaying taxes, and help you retain your revenue savings.
Although it’s quite a handy accounting tool, you can’t claim every item for tax deductions. The ATO has placed three golden rules of tax deductions:
Here are some of the tax deductions that you are entitled to claim this tax season:
If you are required to travel for work-related purposes, that expense can also be considered a part of tax deductions. It could be fuel expenses for your car, airfare, bus or taxi fares, and even accommodation and meals too. Besides, if you want tax deductions for your travel expenses, try keeping track of them.
In fact, the ATO strongly recommends keeping a travel diary, along with records like tax invoices, boarding passes, and tickets, to keep track of travel-related tax deductions. Hearing this, you might think of planning a weekend getaway to Barossa. Sadly, since it’s a form of personal expense, it can’t be claimed.
ATO allows one to claim expenses for protective clothing, laundry, and dry-cleaning should they use it directly for work-related purposes. For example, a construction worker could claim steel-capped shoes, a protective helmet,s or hi-vis vests.
However, going back to the golden rule – you must have spent it by yourself, spent directly related to your earnings, and must have records to prove it. Although the ATO allows claiming expenses up to $300 without any receipts, it is advisable that you keep at least some records that may prove that you actually spent it.
Learning never stops. You can undertake self-education to either maintain or improve skills that directly relate to increases in your income. The ATO has a provision of tax deductions for self-education expenses, clarifying that, “Self-education expenses are the costs you incur to undertake a study course at a school, college, university or other recognized place of education.”
However, your work and the course you take must have a significant connection to be eligible for tax deductions. For instance, if you’re a chef, and you take extra cooking classes, this self-education expense falls under your tax deductions list.
Oftentimes, you might use your own mobile phone or home internet for work-related calls. What about the expense, then? Should you record it as an expense and claim its share of the tax? The answer is yes – well, partially. You see when an expense has both work-related and private uses, you can claim the ‘business half’ for tax deductions.
Take this example: Your mobile phone expense amounts to a total of $70, out of which 60% comes from work-related calls and the remaining 40% from personal use. In this case, you can claim the 60% for tax deductions – given that you don’t forget to keep proof of this expense!
Donations are another expense that you can claim for tax deductions. However, the ATO specifies that the organization that you have donated to be registered with DGR (Deductible Gift Recipient).
What do you need to do? Check whether the organization that you donated to is registered for DGR. Note that the ATO has specified that you cannot claim raffle tickets and fundraising dinners.
Good news: You can claim your home running expenses for some tax deductions! Yes, you heard that right. If you work from home and have a separate room set up for work, you may be able to claim the home running expenses. However, keep in mind that you can only claim for a portion of the work-related expenses.
Tools and equipment such as personal computers and electronic devices can be claimed as tax deductions for work-purpose portions. It does not limit to electronic devices – if you use your own machinery or tools that you have to use for work purposes you may be able to claim those as well.
For example, nurses and doctors are eligible to claim the cost of the purchase of stethoscopes and blood pressure machines that they have bought by themselves to use for work-related purposes.
Aside from the things we’ve mentioned, there are a few other things that you can claim as tax deductions. These include books, periodicals, digital information, union fees and subscriptions to associations, personal super contributions, income protection insurance, and interest charged by the ATO, among others.
No matter how good you are with numbers, dealing with the legalities of tax deductions can be bothersome. The worst part is that if you can’t deal with this problem efficiently and quickly enough, you’ll be in a financial pinch. Thus, we highly recommend that you leave the knick-knacks of taxing to capable agencies like Lotus Smart.
Now, you may already be counting numbers in your head regarding the fees, but worry not. The ATO also has a provision where you can claim tax deductions for the cost of managing tax affairs.
These expenses may seem inconsequential, but when they’re summed up, they total a hefty amount. Now that is something you can’t ignore. To ensure that you save up as much as possible, you can claim tax deductions on a chunk of your expenses.
This information is general in nature and does not take into account personal circumstances and situations. For a better understanding of the ins and outs of taxes, we, at Lotus Smart, have a dedicated team of proactive, forward-thinking, result-oriented members who have held roles in corporate accounting across Australia and overseas. At Lotus Smart, we provide expert accounting and taxation advice to both individuals and businesses. With over 20 years of experience, we’ll ensure that you’re always getting the best guidance from the most professional company in the industry.
For more information, contact us.