Step One – Take a Deep Breath!
Most people are far from enthusiastic about tax time, but you can get more out of the experience if you prepare – and the first step is to work on your mindset.
Tax time shouldn’t be a battle but instead, an opportunity to do some financial housekeeping, reflect on your expenditure over 12 months and plan for the next financial year. Once you’ve sorted the necessary components and ticked the boxes, you’ll feel accomplished, organised and in control.
Understanding What is Required
Step two is to list those sources of money coming in. This may include employment income, bank interest, dividends or investment income, business or casual income and rental income.
Next, you need to think about deductions. Deductions can be money spent on things used for work, account keeping fees, the cost of paying your investment adviser or interest on loans taken out for a rental / investment property.
Your tax accountant can provide a full list of possible deductions and you can also look back over last year’s return. If you’re not exactly sure what’s required, gather together all you can, and your tax agent can clarify which items and expenses are claimable.
Charity donations are also deductible. Please don’t feel that claiming this expense negates the contribution you made in the first place as the tax you save on this can go straight back to charity, and you can give it again.
The ATO also requires details of your private health cover. If you have a partner, you’ll need a fair estimate of their income, and their health cover details too.
Cross Checking the Work Already Done for You
Step three is to determine what info the ATO has and compare it to the information you’ve put together (as outlined in step two). Then it’s a question of simply filling in any gaps.
If you’ve linked your ATO account to your MyGov account, you can log in and see the information the ATO already has on file. Banks, employers, share registries and health funds all report to the ATO, and the information is usually accurate. Keep in mind though that it may not be 100% complete.
The ATO is unlikely to have much information on specific amounts you can claim on those tax deductions that reduce the overall taxable income. Trawling through last year’s bank statements to jog your memory can be helpful.
If you’ve spent money for work, make sure you haven’t been (or won’t be) reimbursed – no double-dipping is permitted. Hold onto receipts or other evidence of this expenditure as the ATO may request documentation.
If you’ve worked from home, as so many of us have through the pandemic, you may be able to claim a home office deduction. Certain car-related expenses may also be claimable if you’ve used your car for work. A note though, the easy ‘short cut’ methods available for car and home office expenses might not get as good a result as using the more complex calculation methods. Talk to your tax agent further on this.
Step Four is all about getting clever. Let me explain.
At the end of the financial year, many people are looking for strategies to ‘optimise’. One suggestion is enter details of your estimated income and possible deductions into an online tax calculator.
Your most recent payslip will tell you the tax you’ve paid for the financial year to date. Compare this to your estimate to see if you’re likely to have a tax bill. To reduce your tax, you can quickly generate more deductions:
- Anything you need to buy for work? Check deductibility rules and grab it before 30 June.
- Donate to charity. This is a feel-good, uplifting thing to do and can reduce your tax. Personally, I recommend Hobart City Mission. They do amazing work locally for those doing it tough.
- Contribute to your superannuation before June 30. Chat to your tax agent or a financial planner about this. Potentially, you can top up your employer’s contributions to your super to a maximum of $27,500 per annum and claim a deduction for the amount you put in. If you’ve not done this before, the deduction may be higher. This is a really powerful way to save on tax because you’re also helping out your future self when retirement comes around.
HELP Student Debt
Additional deductions can be a great strategy if you have a HELP (Higher Education Loan Program) debt and are at the bottom of an income band.
For example, if your taxable income is $60,995, your HELP repayments are $1,830. By reducing this figure to $60,990 or below, thereby reaching a lower threshold, you only need to pay $1,525. By spending or donating just $5 you can have an additional $305 in your pocket. You’ll find more info online regarding HELP thresholds.
Remember though that the debt doesn’t go away, it’s just pushed forward – and is indexed annually by inflation, which this year is 4.2%. Therefore, if your focus is on getting your debt repaid, you may prefer to pay the higher amount or even make a voluntary repayment before the 30 June indexation and repay the whole amount – if you’re getting close. Again, your tax agent can help you consider whether this is worthwhile.
Get Ready for Next Year
Perhaps you’ve left things to the last minute? Never mind as you can get on the front foot for the next financial year.
And remember, we’re here to help, always. We can work together and implement some great tax-effective strategies that will help you on the path to financial freedom.
At Strategic Invest Blue, we’re dedicated to providing holistic advice to our clients, be it young families, empty nesters or retirees, so that they can live their best possible life. We welcome you to arrange a complimentary consultation to ascertain how we can be of assistance.
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Isabel Dallas is a Financial Planner who thoroughly enjoys collaborating closely with clients to help them achieve their goals. As a busy working mum with three boys, she understands that tax time can come around all too quickly each year. Here, Isabel offers some helpful suggestions to make tax time easier.
Talk to one of our advisers today to find out how they can help you with managing your tax.
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