Minimise your tax
TAX time is almost upon us, and while no one likes paying tax, you don't need to be rich or famous to minimise the tax you pay. Some simple and entirely legitimate steps could be all it takes to reduce your tax bill.
The first step is to claim all the work-related deductions you're entitled to. You can only claim the cost of expenses that relate directly to your job - things like briefcases for office workers or sunscreen for outdoor workers.
Special deductions are available for workers in certain occupations namely the airline, building and hospitality industries, and information on these as well as general deductions is available from the Tax Office website (www.ato.gov.au) or speak with your accountant or union representative.
One possible way to reduce the tax you pay is by taking out income protection insurance. This will provide a regular income stream if illness or injury force you out of the workforce. The premiums can normally be claimed on tax, and for a high income earner this can virtually halve the cost while also providing important protection for you and your family.
If the total of your deductions is over $300 you'll need receipts, invoices or similar written evidence for each individual deduction. You'll need to hold onto the paperwork for five years.
Don't forget to claim any offsets you're entitled to. These directly reduce the amount of tax you pay so they offer more bang for your buck than deductions, which only reduce your taxable income.
There is a variety of offsets available including the super contributions tax offset. This lets you claim 18% of super contributions up to $3,000 paid into the super fund of a low income earning spouse or partner. It's a great way to trim today's tax bill and boost tomorrow's nest egg.
Again, you'll need documentary evidence for any offsets you claim.
If you are preparing your own tax return, take the time to check back over your completed return. Simple mistakes can delay your refund or worse, make you a target for a tax audit. Common mistakes include forgetting to attach payment summaries to your return, neglecting to sign and date the completed return and failing to fill out the Medicare Levy section of TaxPack.
Even if your tax affairs are straightforward I reckon it's worth getting professional tax help, and you can claim the cost of the service in next year's return. Always check that you're dealing with a registered tax agent, which is something you can look up on the Tax Office website.
If you choose to do your own tax return, it needs to be lodged with the Tax Office by 31 October. If you are late and you owe tax, you could be slugged with penalties.
Our system of income tax relies on self-assessment, and that can make it tempting to fudge the numbers. My strong advice is, don't. Penalties can be imposed for even honest mistakes, and the consequences of deliberate tax evasion can be severe. The easy way to pay less tax is to earn less money. But who wants to do that?
For more ideas on how to manage your tax take a look at my book Making Money.
Paul Clitheroe is a founding director of financial planning firm ipac, chairman of the Australian Government Financial Literacy Board and chief commentator for Money magazine. Visit www.paulsmoney.com.au for more information.