Drum roll please... the 2nd Edition of the Pioneer Credit Connect Financial Freedom Mini-Series is here! As tax time is now upon us, it’s time to make sure that we are all clear as to what’s new this tax time, how we can all make the most of our tax return, and common mistakes to avoid.
To help you navigate this important time of year, and make organising the mountains of paperwork simple, here are some tax tips that could make tax time a much more enjoyable experience!
Check out the previous edition:
Week 1: Introduction to the Financial Freedom Mini-Series!
Let's get started!
Tax is one of those things that as a working Australian, most of us are obliged to pay. Whilst it may be difficult seeing some of your hard earned money not make it into your bank account, paying tax plays a very important aspect in making Australia an even better place to live - sure, its easy to display irritation at the requirment to pay tax, though have you thought about switching your mindset with positive perception?
Need to go to a hospital or call the police in an emergency? Yep, you guessed it - without taxes, the government would find it very difficult to pay nurses, doctors, and police officers. How do we educate our youth and improve technology infrastructure? Tax! What about healthcare and rebates? Also tax. To see what your tax contributes to, take a look at this cool, interactive graphic.
To kick things off, let's go straight to the source and add the important dates to our calendars. According to the ATO website, if you're lodging your own tax return it will need to be submitted by 31 October 2018. If you like the security and confidence of using a tax accountant, your return can be submitted a little later in the year, but to be safe, ask your accountant what the cut off date is!
This year, employers have the choice of providing you a copy of your group certificate or sending your income, tax and superannuation information directly to the ATO. Your group certificate or income details should have already been provided to yourself or the Australian Tax Office. If this doesn't appear to be the case, go straight to your Payroll department. This is their area of expertise. Consider yourself lucky if your employer has switched over to Single Touch Payroll which is where your income, tax and superannuation information is directly sent to the ATO. For you, this means less paperwork, making it faster for you to submit your return. We think this is pretty swish!
Did you know you could claim for these things?
When it comes time to lodge your tax return, knowledge of what you can claim for could help either lower your tax bill or increase your return. This will mean more money back in your pocket! Here are some things that you may not have known you could claim for:
- Work-related expenses such as uniforms you may have purchased.
- Work from home? If you don’t want to claim comprehensive home office expenses, you can still claim 45c per hour for electricity used when doing work at home.
- If you're studying subjects that are related to your current job, it is tax deductible after the first $250. A handy thing to know is that you can also claim the travel expenses for the cost of getting to and from the campus.
- This one might surprise you but If you work outdoors, slap on some sunscreen and claim the cost of the sunscreen!
- If you pay a tax accountant to do your return, you can claim the expense. But they will know that...
- Want to know more? Click here for more deductions that might be new to you.
Pioneer tip: To claim for most of these things you will need to have held onto the relevant receipts. Dreading having to search for them? Start filing your receipts now so when it comes to next years return you will feel more prepared, reducing the pressure. For less than $200 you can buy a filing cabinet from Ikea or Officeworks, putting you in more control!
So, what do you need to submit your return?
Whilst you have a few months before your return is officially due, avoid the last minute rush by starting to prepare it now. Part of preparing your return means starting to collect all the documents you need in one place. These documents typically include:
- Records of income: whilst your employer will provide you with your income details, if you have earned interest from your bank accounts or dividends from shares you own, you will need to declare these as income. Your bank or share issuer will usually provide you with a statement that outlines how much interest or dividends you earned over the year.
- Insurance details: did you know that if you don't have private hospital cover, the government will sting you with a Medicare levy? Avoiding this is easy if you already have private health insurance, but you will have to let the ATO know your membership details. These are usually on the documents you received when you initially took out the policy.
- Investments: If you own an investment property that has provided you an income over the last year, you will need to declare this in a similar way to any other income.
When completing your return through myGov on the ATO website, you will be advised what documents you need to provide. Want to get started? Click here to sign in to myGov. You'll be prompted to begin your return when you login!
If you think being a student will make lodging your tax return any easier than the rest of Australia, you're wrong. Whilst students do receive lots of other benefits, like concession fares on public transport and cheap movie tickets, when it comes to paying tax, they fall into the same bracket as the rest of us.
Things to avoid when doing your tax return.
Everyone makes mistakes and most of the time it's a learning experience, however when it comes to your tax return, this is one occasion that you don't want to be ticking the wrong box. Here are some common mix-ups to avoid if you don't want to walk down the ATO tax audit trail:
- Guessing or estimating tax deductions: Make sure you have accurate figures when you declare any income or claim a deduction. The ATO already has records of these things so being just a few dollars out of place could spark their attention.
- Failing to declare other income: This is an easy one to forget. When declaring your income, remember that any earnings separate to your regular employment (side hustles and money earners) need to be declared. Income can include any interest earned from your bank accounts, dividends from shares or capital gains if you sell an asset for more than what you purchased it for, moonlighting jobs like bar work or casual freelancing. Some commonly missed income streams can be interest on bank accounts you no longer use, income from an old workplace or even dividends paid from investing apps on your phone like Spaceship Voyager or Raiz (previously Acorns).
- No proof of purchase: If you don't have a receipt, don't claim it. Whilst you may want to reduce your overall tax bill by making a few extra claims, if the ATO comes knocking and you don't have proof of purchase, you may be up for some hefty fines.
Consider seeing a tax accountant...
Are you questioning whether or not an expense is tax deductible? Or unsure if you have declared all of your income? Don't risk it. Seeing a tax accountant will help you reduce your worries when it comes to your return, as well as potentially reducing your tax bill or increasing your return. After all, they're the experts. It goes without saying that some returns are more complicated than others; for example, a student who worked one job all year may comfortably complete their return themselves due to lower earnings, no assets and loyalty to a single employer, whereas an individual with several income streams through additional casual work, assets and investments, will typically need to use a tax accountant!
Pioneer tip: it's easy to give your tax accountant the documents they need and let them go away to do the work. This year, try asking a few questions to see what you can learn about your tax, where it goes and how you can maximise your benefits this financial year. This will give you a better understanding of 'how it works' and the reasoning behind their decisions so you become a more informed taxpayer - you may even find yourself supporting or challenging government policy as an informed citizen.
Although there are fees involved with seeing a tax accountant, this expense is tax deductible in next year's return, meaning that you are only out of pocket once if you continue to see an accountant each year.
Now if you're thinking that all of this tax talk is a bit daunting and dry, and you want to go down the path of using a tax accountant, that is perfectly OK. Start talking to friends, family and doing your own research online so that you can find the right tax accountant for you. To get you started, here are some tips to find the right one for you:
- Have a question you don't know the answer to? Just Google it. If you Google "Tax return" you're most likely going to be inundated with too many options. Instead, add something specific about your situation like "Tax returns for students" if you are a student or "Cheap tax accounts in Melbourne" if you're an inner-city dollar dazzler to help you discover services more tailored to your needs.
- Think you've found the one? Look at review websites or Facebook groups to see what other customers thought of their service. At the end of the day, it might be a wise option to pay slightly more for a reputable accountant.
Now the fun part, how will you spend it?
Fast forward a week after lodging your return and rejoice as the money should now have landed. Either that, or you've successfully minimised your tax bill; congratulations. As tempting as it may be to put this towards your everyday bills and groceries, planning how you will spend the money will ensure that you make well thought out purchases or investments.
Want to go on holiday, repay a debt or put money away for savings?
Great! These are the things we like using our tax returns on. It's not often you have a lump sum land in your bank account (probably once a year), so why not spend it on something big that you can look back on remind you of a goal you have achieved?
Congratulations, you're half-way through the series and we hope you're loving it! If you want to time-travel back to last weeks edition, you can do so here