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Tips for Reducing your Personal Tax Bill

If you are looking for tips for reducing your personal tax bill, then this article is a great place to start.

It pays to know about your income tax and what to do to start reducing your tax bill or even increase what you claim – because no one needs to pay more tax than required.

Here’s 10 tips for reducing your personal tax bill:

1. Keep records

Setting up a checklist is one of the simplest things you can do. It’s easy when you file your electronic receipts as you get them. This also means downloading internet banking interest income details, dividend income statements and share sales at the time the transaction takes place. Use your mobile phone to scan paper receipts or ask for an emailed electronic copy. Keeping good records is the top way to ensure you claim every expense.

2. Claim things you are entitled to

Claiming deductions is a great tool to reduce overall tax payable. The Australian Tax Office website publishes ‘reasonable’ deductions for 36 different occupations / role types, and most accounting firms provide free lists tailored to all types of income you need to declare for your circumstance. If what you spend during the year relates to earning your income, keep all receipts to claim an apportioned deduction. For example, you may be entitled to claim work-related expenses such as meals, travel, accommodation and depreciation on tools such as laptops, smartphones, home office furniture, home internet usage or even electricity and gas. If you are unsure of a claim, keep the receipt and at tax time ask your accountant for advice because the things the ATO allows you to claim change each year.

Our tips for reducing your tax bill – can you claim this?

Consider claiming income protection insurance as a work-related expense. Small work-related items worth up to $200 can also be claimed without receipts. Each item must be less than $10 [for example, stationery, USBs, paper, batteries, calculators] and requires a diary record showing the date the item was bought, where it was bought, and the cost. Don’t miss claiming travel to visit your tax agent. This includes motor vehicle travel, bus and taxi fares. If you take your own car and use the Cents Per Kilometre method, you may not need to keep receipts.

3. Be charitable

Your generosity may result in a tax benefit. You’ll get a percentage back on every donation over $2 made to a registered charity, as it’s subtracted from your taxable income. Plus planning ahead for your charitable contributions can assist in lowering your taxable income. For example, the strategy of making a large donation towards the end of the tax year may lower your overall tax bracket and therefore boost your tax return.

4. Try salary packaging and adjust finances

Another one of our tips for reducing your tax bill could include salary packaging if you’re eligible. If your company allows it, consider salary packaging any expenditures you can. You might be able to package items such as cars, superannuation, mobile phones or gym memberships using pre-tax dollars. Next, consider adjusting your finances to suit your circumstances. For example, if a couple invest funds in a short-term account earning interest, it is more beneficial to invest it in the name of the lowest income earner who will pay the least tax on it.

More tips for reducing your tax bill

5. PAYG tax payments

The ATO makes ABN holders and small businesses pay PAYG tax instalments. This occurs once you make in excess of a certain dollar amount per year, which means that every quarter the ATO will demand a regular payment for tax instalments. It is important to keep in mind that even if you’re not earning that much this year, you may have to pay in this manner because it is based off the previous year’s tax return.

6. Timed expenses

If you know in advance you’re going to incur a large expense or deduction, choose which financial year you pay or purchase. For example, if you have a large expense which is tax deductible and your income for a particular year is going to push you up to the next tax threshold, it may be beneficial to pay or buy then. This will lower your taxable income and could even move you down into a lower tax bracket. It’s just another one of your tips for reducing your personal tax bill.

7. Investments

Making an investment can be tax effective. However, speak to a financial adviser before you invest to check whether the investment complies with tax rules. The investment should benefit you now and into the future.

8. Selling assets, claiming deductions

If you plan to sell one of your assets which may be subject to capital gains, there are a number of things to consider. For assets where you have owned them for longer than 12 months, you may be entitled to a 50 per cent CGT discount. And, you may choose to sell the asset in a year you expect to earn lower income. If you do this your capital gain may not have as big an impact on your tax liability. You can also claim deductions such as building depreciation on a property investment.

9. Seek professional advice

Using a tax agent or accountant saves time and improves your refund. ATO statistics show 70 per cent of Australians use professionals. This is because their job is to help you steer clear of tax problems. And of course, to help you to pay less tax. The rule of thumb is to file as early as possible if you’re going to be getting a refund, and as late as possible if you owe money.

The ATO publish some handy guides on Income and Deductions. This guide can help you understand other tips for reducing your personal tax bill too.

For more help, you should always seek tax advice from an appropriately licensed and qualified professional.

Important Note

Limits, amount and items that can be claimed can and do change regularly. It is important to check with your tax adviser to confirm the ATO’s current requirements.

If you’d like to chat about finance, please contact us.

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