Things You’re Doing Wrong At Tax Time
There’s no doubt about it: tax time can be confusing. Even if you’ve done your taxes every year for the past 10 years, there’s a good chance you’re making at least one mistake this time around. But don’t worry! We’re here to help.
In this post, we’re going to highlight some of the most common mistakes people make when filing their taxes, and we’ll provide tips on how to avoid them. So read on, and learn how to file your taxes like a pro!
Are you getting ready to file your taxes? If so, make sure you don’t make any of these common mistakes! You can ensure a smooth process and get the most out of your return by avoiding these errors. Keep reading for a list of the top three things people do wrong at tax time. You’ll be glad you did!
Are you getting stressed out about tax time? It’s easy to make mistakes when you’re filing your taxes, but don’t worry – we’re here to help! In this post, we’ll highlight some of the most common mistakes people make when filing their taxes. You can streamline the process and ensure that your return is accurate by knowing what to avoid.
Things You’re Doing Wrong At Tax Time
Let’s admit it. Putting together a tax return isn’t exactly something most people relish. But completed correctly, it can be one of the largest lump-sum payments some of us receive each year. So it definitely pays to get it right!
Unfortunately, though, not all of the 8.5 million or so Australians who submit a tax return each year will do it properly. This is because the Tax Office conducts some 450,000 reviews and audits each year and adjusts somewhere near $1 billion in over-claimed returns. And it would be next to impossible to guess the amount of money Australians are leaving on the table by under-claiming!
So, what exactly are we all doing so incorrectly when it comes to our taxes each year? Below are some of the more common mistakes.
Waiting Until Tax Time To Think About Tax Time
If you’re struggling with missing information or proof of purchases, you may be guilty of neglecting your taxes throughout the year. This can make life unnecessarily hard at tax time, but staying tax-ready doesn’t have to be difficult.
Developing a few simple habits can make a world of difference – like taking photos of all your receipts, or printing your bank statements at the end of each month, and highlighting any work-related expenses.
For those who are more digitally inclined, there are also a number of apps that can also help you track your expenses, so everything is immediately good to go come to the end of the financial year. Too simple!
Yes, we know you’re super intelligent and also totally great with numbers. But could you honestly say that you are completely on top of Australian taxation legislation?
If you haven’t spent several years or decades of your life working exclusively in tax, don’t do your own tax returns. Just don’t. There are plenty of affordable accountants who will easily make you more on your tax return than their fee (also claimable) will amount to.
Over- or under-investing in your tax expert
It also pays to get the balance right when it comes to selecting your tax professional.
Own 15 investment properties, a share portfolio that could rival an investment banker, and a series of limited proprietary trusts? Perhaps it might be an idea to shoot for that Big Four accounting firm and hire a dedicated tax specialist with decades of experience.
Work at a pizza shop and haven’t yet started accruing university debt? Your local accountant will probably work just fine.
Over-investing can mean throwing away money needlessly, but under-investing can sometimes be even more costly in unclaimed deductions or mistakes. Therefore, choose wisely according to your personal circumstances.
Thinking It’s Too Late Once It’s Submitted
If you’ve gone the DIY tactic for whatever reason but then made a mistake, don’t fret. The Tax Office allows you to correct your return via their website easily, so there’s no need to worry about any accidents. So instead, jump online, and save yourself a potential fine.
Failing To Declare Overseas Income
Those six months earning €8 an hour as an English-speaking nanny in Barcelona surely don’t count at tax time, right? Wrong …
You will need to declare any earnings made overseas, including employment income, pensions and annuities, investment income, government or business grants, and even capital gains on any overseas assets.
And if you’re thinking you won’t be found out, think again. The ATO regularly targets Australians with undeclared assets or income overseas. Increased data sharing between governments around the world also means it’s only a matter of time before you are caught.
Want to know the secret to a generous return? Deductions, deductions, and more deductions!
Even though deductions can even drop you from one tax bracket into a lower one, thousands of Australians are still under-claiming in many areas. This is where religiously tracking your expenditure, and using a professional, can make a world of difference.
That being said, you can’t claim everything.
As an example, you can’t claim tax the full year through on your investment property if you or your friends lived in it for any period. You also need to consider your situation. For example, if you are a security guard, you can claim for a guard dog. But if you are working from home and simply have a dog, no, it cannot be claimed!
Large fines apply – so be safe, not sorry.
Getting Sloppy With The Proof
There is no proof = no claim for items over $300 in the “Other work-related expenses” category.
But a common mistake made here is thinking that the items have to EACH be under $300 – not less than $300 in TOTAL. Some work-related expenses also go under different categories, such as laundry, travel, or FBT. So, it pays to keep receipts of absolutely all expenses and let your tax professional assign them to the appropriate categories.
This one really is a no-brainer. You have to complete your return at some point, so why not meet the October 31 deadline?
Fines can apply for late returns. And while the risk may be low if the ATO owes you money, if you are the one owing them money – you better believe you will hear from them.
Hating Tax Time
When you have a negative attitude towards something, it will always be hard to do a great job at it. But if you approach your taxes knowing that a small amount of dedication can lead to a great return, it can help to make the whole process feel like less of a chore.
You may even find yourself relishing the process, knowing you are helping yourself achieve the maximum return. Just think of the shopping trip or holiday you may be able to afford as a result – and get off the couch and get started!
Not Declaring Your Entire Income
The Australian Tax Office says the biggest mistake someone can make is failing to declare your entire income. That means everything from your regular job to temporary jobs you only spent two weeks in to cash-in-hand payments all must be declared.
That even includes some things you might recognise as income, such as money from the “sharing” economy or capital gains earnt from cryptocurrency like Bitcoin.
Claiming Deductions For Things You Aren’t Entitled To
The tax office has three golden rules for claiming deductions: it must be related to earning your income, you have to have bought it yourself (and not been reimbursed), and you have to have a record to prove it.
The ATO says a lot of people confuse personal costs with work costs. So, for instance, travelling from home to work is not something you can claim on – but using your own car to travel between tasks as part of your job is something you can part claim.
Other people get stuck in the trap of making “usual” deductions like $300 for laundry when they may not be entitled to do so as part of their occupation.
Forgetting To Keep Receipts
It’s the curse that gets us all. Receipts are often discarded, thrown in the car or left in shopping bags forever.
Where possible, it’s best to have a receipt emailed to you and then printed so you have both a soft and a hard copy. It’s even easier if you use the ATO’s My Deductions app, which can take photos of your deductions as you buy them.
Claiming A Deduction For Something You Never Paid For
This one is a no-brainer and comes back to the three golden rules. First, to claim a work-related deduction, you must have paid for it with your own money – and you cannot claim it if your work reimburses you for your expenses.
Claiming Personal Expenses For Rental Properties
The ATO says if you own an investment property that is available for rent, you can only claim deductions for times when your property was rented or genuinely available for rent.
Claiming the total of the property’s expenses when you haven’t made a genuine effort to make it available to rent will raise a red flag with the tax office.
Forgetting To Declare All Your Income
It’s not just the obvious income from your current job the Tax Office needs – everything from the interest earned on the bank account to the dividends from the shares you may own all need to be declared. Did you have more than one job in the financial year? You’ll need to track down a group certificate from that job and declare that, too, along with any investments in your name.
Deductions That Relate To Motor Vehicles, Or Rental Property Expenses
We get plenty of questions around claiming costs for your car or motor vehicles as well as rental property expenses. And rightly so – there are some fairly complex rules around them, including what records you need to keep. If you get it wrong and the ATO finds out, you could be facing an audit and a hit to the hip pocket. We can help explain the rules and make sure you’ve got the right documents.
Wrongly Claiming Work-Related Expenses
Professional ballerinas can claim stage make-up, but everyday lippie is off-limits. Likewise, office workers can claim travel costs to meetings, but not to their main office. The point is, the Tax Office is very specific about what can be claimed and what can’t. Your accountant can explain these and find some deductions you might not even know you are eligible for.
Guessing Or Estimating Your Income And Tax Paid
On your tax return, ensure you use accurate figures when you enter your income and the amount of tax you’ve paid. The ATO has records of this, and they compare what you submit against the information they already have. They might not have records of some types of income like consulting or solo work, but they can see your accounts.
With some employers sending PAYGs, some using single touch payroll, and some maybe nothing at all, it can be hard to be sure about all your income.
All your entries must be correct and complete. Just a few out of place dollars can attract the ATO’s attention.
Guessing Or Estimating Your Tax Deductions
The ATO has become obsessed with the tax deductions claimed by ordinary Australians. They could be nabbing big-business tax dodgers who hide all their profits overseas and pay no tax, but that’s more difficult. The fact is, they are looking directly at you and me.
There is one important thing the ATO doesn’t already know about your taxes, and that’s your tax deductions. This makes them a bit uncomfortable. Deductions are something only you can keep track of.
Don’t be “creative” with tax deductions because now, the ATO analyses every item you claim. Then they compare your deductions against other people in your line of work, your location, your industry, your age group, and their own ‘benchmarks’. So if your deductions look too high to the ATO, watch out! They also have an uncanny knack for asking about items where you can’t find a receipt, so it’s best to have that sorted in advance.
Failing To Declare Overseas Income
Many Australians work overseas for a period of time during their lives. Often they forget to pay their Australian taxes. Others simply assume they won’t need to lodge a tax return back home. Those are both bad mistakes. If you work overseas, talk to a tax agent asap to keep your taxes away from trouble and avoid big tax payments.
The fact is, if you are an Australian resident for tax purposes (which is more complicated than just being here), then you should still lodge an annual tax return in Australia even if you are living and working overseas at the moment. This is because you need to declare all your foreign employment income AND any other income you receive from that country.
Foreign income includes:
- pensions and annuities
- employment income
- investment income
- business income
- capital gains on overseas assets
Over-Claiming Expenses For Rental Property Or Holiday Rental Property
The most common tax return mistakes relating to holiday and residential rental properties are often due to the strict rules applied to when you can and cannot claim tax deductions for the property-related expenses over the year. If you own a residential or holiday rental, it’s worth making note of the following. Not all expenses can be claimed!
Holiday rental properties:
- Remember that you can’t claim deductions on a holiday rental property that is not genuinely available for rent. For example: When you stay in your holiday home personally or periods when you allow friends or relatives to stay in the property free of charge. These periods of occupancy must be removed when calculating your overall expenses.
- If your holiday rental is only available to rent for part of the year, you must adjust your deduction claims based on the portion of the year the property was for rent. Your Etax Accountant can help you do this.
- If you and your spouse jointly own a property, split the expenses incurred evenly between both tax returns. In the online Etax tax return, you can specify your percentage ownership of the property. You should claim only your percentage of all claims and figures for that property. (This also applies for residential rental properties.)
Residential rental properties:
- You must declare all the income you earn from your property each financial year.
- You can only claim expenses for the period of the year the property is available for rent. Also, the expenses relating to the property prior to be it being rented for the first time are not claimable.
- The costs of renovations and capital works cannot be claimed straight away. Instead, these are claimed at 2.5% of the total cost each year for 40 years.
No Receipts For Deductions, No Proof Of Purchase
Paying money for work-related items and keeping no receipt is a costly mistake that many people make.
Basically, without receipts for your expenses, you can only claim up to a maximum of $300 worth of work-related expenses.
But even then, it’s not just a “free” tax deduction. The ATO doesn’t like that. So it has to be real expenses.
Remember: If you over-claim your deductions and get a bigger tax refund than you’re entitled to, the ATO can ask you to repay some or all of your refund – plus interest charges and possible penalties as well. That also goes for claiming big deductions that you can’t prove.
If you have a question about a particular deduction or expense you’d like to claim, contact your Etax Accountant by clicking ‘My Messages’ when logged-in, or when you fill out your tax return. You’ll get expert advice to ensure you get the best refund possible and to lodge your return legally & correctly.