The new financial year is here and with it comes the annual obligation to submit our income tax return by 31 October. For many of us, the process is as painful as having teeth pulled, but the rewards can be great. Dr Adrian Raftery, principal of Mr Taxman and author of 101 Ways to Save Money on Your Tax – Legally! shares seven common mistakes to avoid when doing your tax this year.
1. Mathematical errors (stupidity)
Small mathematical errors could result in big mistakes. A wrong number here or a bad calculation there may cost you thousands. So, if you do your return yourself, make sure you ‘measure twice’ and avoid any unnecessary headaches.
2. Doing it yourself (arrogance)
Just as most people can change a tyre, most of us have the ability to do our tax ourselves, but it usually pays to get an expert to look at your tax for you. The last thing you need is a knock on the door from the taxman because you claimed too much. A registered tax agent knows where the boundaries are in terms of what you can and, more importantly, can’t claim. And their fee is tax deductible too!
3. Not lodging (forgetfulness)
There are a number of slackos out there who simply procrastinate and not only don’t lodge a tax return on time, but have several returns outstanding. Get them in as you could be costing yourself thousands in unclaimed refunds. My record was submitting 33 years’ worth of tax returns, which netted the lucky person over $70,000 in refunds! If you know that you have to pay, then lodge your return to avoid unnecessary late lodgement penalties. The ATO is always willing to negotiate payment plans.
4. Omitted income (dishonesty)
This year, the ATO data-matched more than 700 million transactions and expects to contact 500,000 taxpayers with discrepancies on their interest, dividend, trust and managed fund income as well as capital gains on shares and properties. This process is quite lucrative as more than $1 billion is usually raised in tax revenue each year due to audit investigation by the ATO. Overseas income as well as income from the cash and sharing economies (for example, Airbnb, Uber, Airtasker, Camplify and Car Next Door) are particular areas of focus this year. You can run from the taxman but you can’t hide.
5. Claiming less than what you are entitled to (laziness)
You wouldn’t walk past a $100 note if you saw it on the ground, so why do people think that it is okay to claim less than what they are legally entitled to so they stay under the ATO’s radar? Check and double check that you have the correct information and documents prior to lodging your return. If you have a deduction that is legitimate, then claim it – no matter what size it is. Don’t just claim the cents per kilometre method for car expenses or the 80 cents per hour shortcut method for home office expenses, get your receipts and do your log books. Make sure you go through all your receipts and graze through every line of all bank account and credit card statements because there are myriad deductions that you might be missing out on. If you have more than $300 worth of total deductions, then you must have documentary evidence for the full amount – not just the amounts over $300. By all means go to the boundary but not over it.
6. Rental properties (greed)
The ATO always sees a number of errors with individuals over-claiming expenses in rental property tax returns, including initial repairs, interest on loans that include a private component, borrowing costs and claiming depreciation without a quantity surveyor’s report. Conversely, I have also seen a number of returns where the taxpayer simply didn’t realise everything they could claim, particularly land tax and strata levies. If you have a real estate agent managing your property, then ask them for a summary of income and expenses to make the tax return process easier.
7. Car log books (carelessness)
For example, if you make a claim for motor vehicles expenses under the log book method, then it is obvious you make sure that you actually have a log book prepared in the correct format. It must be for a continuous 12-week period and prepared within the past five years. If you have changed your car or your job duties since you did your log book, then you must prepare a new one.
Ten quick tax tips
1. Claim a deduction for the costs you incur in running your home-office.
2. Keeping a car log book could increase your refund by thousands.
3. Take advantage of the government’s free money service known as the ‘super co-contribution’.
4. Minimise capital gains tax (CGT) by deferring sale or offsetting losses against gains already made.
5. Build your nest egg quicker by paying 15 per cent rather than 47 per cent by salary sacrificing into super.
6. Income expected to be lower next year? Bring forward some 2020/21 expenses into this year.
7. Recontribution to split superannuation between spouses.
8. Buy a new business asset for under $165,000 and claim it as a tax deduction this year.
9. Keep your receipts.
10. Get a great accountant.
These tips were provided by Mr Taxman, Adrian Raftery, author of 101 Ways to Save Money on Your Tax – Legally!
Do you do your own tax return? Are you sure you are taking advantage of all the rules and regulations? Especially in the 2019–20 tax year?
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Disclaimer: All content on YourLifeChoices website is of a general nature and has been prepared without taking into account your objectives, financial situation or needs. It has been prepared with due care but no guarantees are provided for the ongoing accuracy or relevance. Before making a decision based on this information, you should consider its appropriateness in regard to your own circumstances. You should seek professional advice from a financial planner, lawyer or tax agent in relation to any aspects that affect your financial and legal circumstances.