What are the 10 easy ways to pay less tax this next tax season? Bottrell Business Consultants outlines 10 simple tips that can save you a lot at tax time.
We asked our accountants for a few tips on the easiest ways to pay less tax to the ATO and keep more in your pocket.
Here are 10 easy tips on paying less tax. It could help you save big $$$ next tax season.
- Keep Good Tax Records
You need to have receipts for all tax deduction claims, so you can show them to the ATO, if they request them. Keep track of those receipts, it’s the best way for you to remember everything that you can claim, later.
Record keeping shouldn’t be a headache. Put aside 5-10 minutes each week to download statements, update your logbooks and put all your receipts into a folder. We guarantee it will save a lot of time and anguish at the end of financial year.
- Be Charitable
Did you know that every donation over $2 you make to a registered charity is tax deductible?
Donating to charity is always a good thing and is also claimable on your tax return. After you donate, you should receive a receipt. Make sure you keep it! At tax time, enter the total amount into the charity donations section of your tax return.
Your donations do not come straight back onto your tax refund. The amount is subtracted from your taxable income, which means you get a percentage back.
- Claim everything you are entitled to claim
Claiming work-related expenses like transportation is a very good way to increase your tax refund and pay less tax. Even if you purchase an item partly for work and partly for personal use, you can still claim an apportioned deduction of the cost.
Not sure whether you can claim an item? Remember, it is always better to keep a receipt and not be able to claim it, then to throw it out and find out you could have!
- Seek the Advice of Tax Professionals
In most cases, using a tax agent or accountant won’t just save you a lot of time, it will also improve your tax refund or net payable.
Bottrell Business Consultants are experts in tax and always stay up-to-date with changes in tax legislation. We may find you are entitled to deductions you are unaware of. Quite often our people spot and correct little. Left unchecked, these mistakes can also cause an ATO reassessment or audit.
- Medicare Levy Surcharge
If you’re without private hospital insurance and your income exceeds $90 000 for singles or $180 000 for families, you will be required to pay a minimum of 1% Medicare Levy Surcharge. This is on top of the compulsory 2.0% Medicare levy paid by most Australian taxpayers.
A basic private health cover plan can cost less than the 1% of your gross income you’ll have to pay each year, for this reason it’s worth considering. At the same time, you should always do your homework before taking out private health cover, just to make sure you take out a cover that’s appropriate for your circumstances.
- Control the timing of your tax-deductible expenses
If you know in advance that you will have considerable tax-deductible expenses, you may be able to choose which financial year you purchase them in.
If you have a large expense that is tax deductible and your income for that year is going to push you up to the next tax threshold, it may be best to purchase your item right before the end of the tax year. This will lower your taxable income for that year and, in some cases, could move you down into a lower tax bracket.
Alternatively, in a year that you take an extended holiday or unpaid leave and your income (and tax) is lower, it may be more beneficial to delay purchase of larger tax-deductible items until the next time your income and tax jump higher.
Depending on your individual finances or circumstances, making an investment can also help you reduce tax considerably.
However, this is certainly not the case for everyone. Before you decide to invest, speak to your financial planner who can advise you if an investment will suit you. Remember, the investment should benefit you now and into the future – there is no point saving a small amount of tax now a poor investment ends up losing you your original capital in the long run.
- Pay off your mortgage
In general, you are taxed on your savings so if you are an avid saver, you could face a hefty tax bill at the end of each year. If you are buying your own home, you can kill two birds with one stone by paying the money you can save each month onto your home loan instead. You pay down your mortgage PLUS you are no longer taxed on that money. The over payment is usually still accessible as a re-draw, should you need to use some of the money in the future. However, watching your home loan get lower and lower can make you think twice before dipping in.
- Selling Assets
Do you plan to sell an asset that is subject to Capital Gains Tax (CGT)? If you are, then there are things you should consider. How long have you owned the asset? If you have owned the asset for longer than twelve months you may be entitled to a 50% Capital Gains discount. If you haven’t owned the asset for at least twelve months, you will have to pay more CGT.
Does your income fluctuate? If so you may choose to sell the asset in a year you expect to earn a lower income, as your capital gain won’t have such an impact of your tax liability.
Which methods do you use to reduce tax and maximise your refund?
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