We talked to our top small business accounting experts about the most effective ways you can reduce your tax burden and keep more of your income. This is Part 1 of a two-part article on the best ways to save money this tax season.
1. Keep Accurate Financial Records
The ATO requires you to have receipts to back up your tax deductions. Organizing your receipts, keeps you in compliance with the law and helps you make sure you claim every deduction you are entitled to receive.
It should take you just a few minutes each week to collect receipts and enter the information on a computer to update your records. This will save you from having to add up all your receipts at the end of the year.
2. Donate to Charities
You can deduct any donation more than $2 made to any registered charity. The charity will give you a receipt at the time of donation. Keep all your donation receipts in one folder and add them up when you are ready to file your tax paperwork with the government.
You do not receive a full refund for charitable donations. Donations are deducted from taxable income, so you will receive a percentage of your donation back based on your overall income and tax rate.
3. Claim All Eligible Deductions
You can claim many work-related expenses. Claiming eligible deductions is one of the best ways to reduce your taxes. You can claim any money you spend that relates to running your business. Make sure you keep your receipts so you can prove you spent the money. If you purchase sometime that you use part time for work and part time for personal use, you can still deduct a portion of the expense.
If you are not sure if the expense is deductible, file the receipt and ask us about it when we help you prepare your tax return. It is better to have the receipt just in case you need it later. If you find out the expense is not deductible you can discard the receipt then.
4. Speak to a Tax Professional
Hiring a small business Xero expert or some other tax professional can save you time and money. According to the ATO 70% of Australian residents hire a tax agent like Etax.com.au to help with returns.
At Etax, we employ expert accountants for small business who are knowledgeable about current tax laws and stay updated on all changes. Our accountants can help you reduce your tax obligation with deductions you never knew existed. These professionals pay attention to the details and correct any mistakes that can trigger a future audit or delay a client’s refund. Our rates are reasonable and you can claim them as a tax deduction on next year’s return.
5. Medicare Levy Surcharge
You must have a private insurance policy or pay at least 1% extra for the Medicare Levy Surcharge if your single income exceeds $90 000 or your family income exceeds $180 000. Most taxpayers will also have to pay a compulsory 2% Medicare levy. In most cases, a private policy will cost less than the surcharge, so can save money by finding an affordable policy.
6. You Decide When to Pay for Tax Deductible Expenses
You can choose when to purchase a large ticket item that qualifies as a deductible expense. If your income is going to put you in the next tax bracket and you need to make an expensive purchase, it may benefit you to purchase the item at that time and reduce your taxable income. If your income is lower one year due to an unpaid leave or some other circumstance, it may be better to wait to purchase the expensive item until your income goes up and your tax burden is higher.
7. Making Investments
Speak to a financial planner for advice about when to make investments. Simply paying a lower tax now does you no good if you make a poor investment and lose the original capital in the future.
8. Adjusting Finances
You may be able to adjust finances if you have a partner and the circumstances warrant it. You can make investments in the name of the partner earning the least amount of income so you pay less on any interest earned.
9. Do Not Ignore Small Items
All deductions add up no matter how small they are. Keep all receipts for the best chance of minimizing your tax obligation. If you need clarification on a deduction, ask us about it in the “My Messages” section of your Etax return.
10. Selling Assets
If you are selling an asset subject to the Capital Gains Tax, you are eligible for a 50% discount if you were the owner for a period longer than 12 months. Selling the item when your earned annual income is lower will have less of an impact on the amount of taxes you owe.