The end of the financial year is a little over a month away, and tax time will be upon us once again. Here’s how to get prepared.
Are you one of those for whom lodging a tax return each year is not something you put a lot of thought into? You could be missing out on thousands in deductions by not preparing properly.
It can take time to gather all the necessary paperwork to claim everything you’re entitled to, so it pays to get started early.
Claim what you’re entitled to
To make a claim on your tax return, you’ll need to be able to prove it, so gather all invoices, receipts and even bank and credit card statements that contain work-related expenses – for when you can’t find the specific receipt.
Mark Chapman, director of tax communications at H&R Block, told Nestegg that taking the time now to prepare your tax evidence can pay big dividends when you get your return.
“If you don’t have the paperwork, you can’t claim a deduction, so it makes sense to set aside this time in advance of the end of the financial year to spare yourself a stressful document hunt whilst you’re actually in the process of getting your return prepared!” he says.
“In addition, if you’re claiming any expenses that have a work-related element and a private element (such as for the use of a personal mobile phone), set some time aside to work out what a reasonable apportionment is for the work-related bit.”
Don’t embellish claims
While claiming everything you are entitled to is important, don’t be tempted to exaggerate the costs you’ve incurred, particularly if you don’t have evidence to back it up.
Many items can be claimed without evidence, up to a certain limit. If you’re making claims that sit at the top of this limit without proof, you’re going to attract the attention of Australian Taxation Office (ATO) auditors.
“You can only claim what you’ve spent,” Mr Chapman says.
“So, 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 said.
The ATO has already signalled it will be cracking down on embellished claims this year, as it looks to address a reported $8.7 billion tax shortfall.
Don’t rely on pre-filled data
When filling out your tax return, a lot of the information about your income and the tax you’ve paid will come pre-filled by the ATO. Be sure to review this information as it is not always correct, and the onus is on you to make sure it’s correct.
The reason this information is often wrong is that third parties such as banks often don’t pass this information on to the ATO until late or July or even early August.
While it pays to prepare your tax return early, consider waiting to lodge until this time, so all the relevant information will have been passed on. You have until 31 October to lodge your tax return without penalty.
Get professional help
Getting the most out of your tax return often requires the skills of a tax agent or accountant. Tax law is complex and detailed and can be difficult for the layperson to decipher.
Getting a professional to go over your return can potentially net you thousands, or at least make sure to avoid penalties.
“This ensures the return will be accurate and complete, whilst an experienced agent will usually be good at sniffing out obscure tax deductions you didn’t know you could claim. Best of all, the tax agent’s fee is deductible,” Mr Chapman says.
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