The 31 October deadline to submit our 2014/15 income tax return is fast approaching. For many of us, the process is as painful as having your teeth pulled but the rewards can be great. Dr Adrian Raftery, a senior lecturer at Deakin University and author of 101 Ways to Save Money on Your Tax - Legally! 2015-2016 edition (Wrightbooks, June 2015, AU$24.95) shares with us seven common mistakes to avoid when doing your tax this year.
1. 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 then make sure you 'measure twice' and avoid any unnecessary headaches.
2. Carelessness – check and double check that you have the correct information and documents prior to lodging your return. For example, if you make a claim for motor vehicles expenses under the log book method then it is obvious that 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 last 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. Make sure that you go through all your receipts and graze through every line of all bank account and credit card statements because there are a myriad of 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.
3. Greed – the ATO always sees a number of errors particularly with the over-claiming expenses in rental property tax returns including initial repairs, interest on loans which 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 that 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.
4. 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!
5. Forgetfulness – there are a number of people out there that 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 thousand in refunds! If you know that you have to pay then lodge your return to avoid unnecessary late lodgment penalties. The ATO is always willing to negotiate payment plans.
6. Dishonesty – this year the ATO data-match over 650 million transactions and expect to contact 600,000 taxpayers with discrepancies on their interest, dividend, trust and managed fund income. This process is quite lucrative as $951.6 million in tax revenue was generated last year due to audit investigation by the ATO. Overseas income and the cash economy are particular areas of focus this year. You can run from your tax return but you can’t hide.
7. Idleness – you wouldn’t walk past a $100 note if you saw it on the ground so why do people think that it is ok to claim less than what they are legally entitled to so that they stay under the ATO’s radar? If you have a deduction that is legitimate then claim it, no matter what size it is. By all means go to the boundary but not over it!
Mr Taxman’s 10 quick tax tips
- Keeping a car log book could increase your refund by thousands
- Take advantage of the Government’s free money service known as the 'Super co-contribution'
- Minimise capital gains tax (CGT) by deferring sale or offsetting losses against gains already made.If you made a nice capital gain or two earlier in the year then you can reduce CGT by selling any non-performing shares that you may be currently holding.
- Build your nest egg quicker. You can contribute up to $30,000 per year into super ($35,000 for those aged 50 and over) which is only taxed at 15 per cent instead of your marginal tax rate (potentially 49 per cent).
- Income expected to be lower next year? Bring some expenses forward into this year
- Prepay private health insurance
- Claim a deduction for the costs you incur in running your home-office
- Buy a new business asset for under $20,000 and claim it as a tax deduction this year
- Keep your receipts
- Get a great accountant
This information is of a general nature only and does not constitute professional advice. You must seek professional advice in relation to your particular circumstances before acting.
These tips were provided by Mr Taxman, Adrian Raftery, author of 101 Ways to Save Money on Your Tax - Legally! 2015-2016 edition (Wrightbooks, June 2015, AU$24.95). @mistertaxman