5 tax tips to put you in the driver’s seat at tax time
Guest post written by Andrew Miller, CKC Accountants
Firstly, this is not another boring blog post from your local accountant. Ok, I am a local accountant, but given my recent attempts at four wheel driving – where my ute may have found itself teetering on the edge of a ridge – I think I get a free pass out of the ‘boring’ box. My wife would probably prefer if I did fit the stereotypical accountant mould. Anyway, not to be.
Tax is not an exciting topic for anyone. Traditionally, tax has been associated with a whole lot of messing about finding receipts, getting files in order, searching bank records, all to be rewarded with a whopping tax bill at the end of it all.
Technology has become indispensable in streamlining your accounting systems, and your accountant has really become your greatest ally in saving you a whole lot of stress and money at tax time.
- Plan Now. There is no point in waiting until 1 July to do some basic tax planning, as the horse will have bolted. You need to discuss with your accountant ways to legally minimise your tax obligations now. Tax planning should not be a mad rush at midnight hour. Careful planning throughout the year will give you the best results.
- How to Maximise Deductions. Making the most of allowable tax deductions is a surefire way to paying less tax. Ways to achieve this is to spend time collating your records throughout the year to ensure you don’t forget to claim deductions you’re allowed in your tax return. If you are in business you need to consider using a cloud based accounting software like Xero to achieve this.Don’t fall into the trap of spending your hard earned money just to get a tax deduction. Your taxable income is calculated as follows:
Therefore your allowable deductions can only lower your tax by your Marginal Tax Rate. For example, a tax deduction of $1000 to someone in the 32.5% tax bracket will lower tax by $325, however if the taxpayer did not really need the item and only did it for the tax deduction they are worse off. The taxpayer has spent $1000 on an item that they did not need to save only $325 in tax. So they are actually $675 worse off. The message here is to make sure what you spend your money on what actually counts, for example income protection insurance.
- Allowable Deductions. When considering what you can claim in your tax return, whether you are in business, or earning salary and wages, any costs that are not private in nature and incurred in earning your income are tax deductible. Items to keep in mind are:
- Vehicle and travel costs
- Clothing and laundry
- Gifts and donations
- Home office expenses
- Self-education expenses
- Tools of the trade
- Use Superannuation. Salary sacrificed to superannuation allows you to effectively lower your personal tax burden and is a great tool to bring your income down in years where you may have had a capital gain or received a bonus. It works by redirecting your earnings paid by your employer to your Super Fund. Those earnings would have been received by you and taxed in your hands had you not salary sacrificed them to super.Consider someone’s income in the 32.5% bracket, meaning for every extra $1 they earn they will pay 32.5 cents in tax, if they directed those earning to super by sacrificing their salary their fund will only pay 15% tax on that money as it goes into the super fund, saving 17.5 cents in the dollar.Self-employed business people can also use super to lower their tax in much the same way. Please keep in mind that there are caps on how much you can sacrifice to super concessionally, so you should talk to your finance professional before implementing this type of strategy.
- Use an Accountant. See an accountant to help you prepare your tax return to get what you’re entitled to, as well as a financial health check which covers:
- Tax planning advice
- Wills and Estate Planning
- Home loan and debt structuring advice
- Risk Insurance discussion (Life Insurance, Trauma, TPD and Income Protection)
These are five very simple tips that you can implement immediately to help you save some money. Hopefully, they provide a better insight into how the tax system works as well. Let me know how you get along.
If you’re reading this, chances are it’s because you’re not getting the advice you desperately need from your accountant. An accountant who is not proactively working with you, is potentially costing you money. Here are 5 tips on choosing the right accountant.