These Five Mistakes May Lead You to Paying Too Much on Your Taxes
Published 7:02 am 18 Oct 2019
Every financial year, Australians make mistakes when working out their tax obligations. Here are five big ones that affect the amount of tax you pay.
Did you know that 80% of Australians pay more tax than they should? They make mistakes with their assessable income and deductions that end up costing them thousands of dollars.
Why does this happen?
Usually it comes down to a lack of awareness of what you as an individual or business owner can do about your tax bill.
This article examines some of the key mistakes people make that cause them to pay too much tax.
Mistake #1 – Not Checking Your Previous Tax Returns
You may believe that it’s a one-and-done thing when you lodge your tax return.
That’s not the case. You have at least two years to make amendments to previous returns, as the Australian Taxation Office (ATO) points out:
“For individuals and small businesses the time limit is generally two years, and for other taxpayers four years, from the day after we give you the notice of assessment for the year in question (generally taken to be the date on the notice or, if we don’t issue a notice, the date the relevant return was lodged).”
Let’s say you’re a sole trader who received a notice of assessment on 10th November 2018. You can make amendments to that tax return between 11th November 2018 and 10th November 2020.
There are also no limits on the number of amendment requests you can make during this period.
This is important because it opens the door to getting a tax refund if you missed something.
Mistake #2 – Letting Tax Be a Mad Scramble
We all know what it’s like with federal income tax.
You forget about it for the entire year… until the deadline starts looming. Then it’s a mad dash to figure out what your taxable income is and what you can deduct.
You rush all of the documents over to an accountant and they go through the motions. You get a tax return, lodge it, and forget about it until next year.
That mad dash isn’t doing you any favours when it comes to lowering your tax bill. Your tax structure is something you need to put in place early. That means it’s ready from the moment you earn income in the new financial year.
If you’re scrambling to put everything together, you’re going to miss a lot of things. Speaking of which…
Mistake #3 – Leaving Deductibles on the Table
There are all sorts of things you can deduct from your tax bill.
For example, let’s say you’ve spent money on trying to clear a bad debt. That’s a situation many DG Institute clients find themselves in. Legal fees you pay as part of those efforts are often deductible.
The same goes for the legal fees you pay to create a more tax-effective structure. Plus you can deduct legal fees related to your job, which is important if you’re self-employed.
Speaking of employment, any tools of your trade offer you opportunities for deductions. For example, if you’ve bought a laptop for work, that asset depreciates in value each year. You can claim this depreciation back on your tax return.
Many Australians leave these deductibles on the table.
Mistake #4 – Not Claiming Deductions for Education
Claiming deductions for work-related expenses seems like common sense.
However, many people don’t know you can claim back the money you spend on your education. The key is that it must upgrade a skill relevant to the work you do.
According to the ATO, the course must achieve one of the following:
- Maintain or improve the specific skills or knowledge you require in your current work activities
- Result in, or is likely to result in, an increase in your income from your current work activities.
For example, you may complete one of DG Institute’s property programs. The knowledge gained from these programs improves your skills as a property investor, likely leading to more income. Thus, they’re often deductible.
Mistake #5 – Missing Payment Deadlines as a Business Owner
If you’re a business owner, 30th June is an important date for you. It is the deadline for making tax-deductible payments for the current financial year.
Let’s say you have superannuation payments to make on behalf of your employees. Those need to be both paid and received before the deadline to count towards this year’s tax return. The same goes for payments you make to creditors.
If you miss the deadline, you can still claim for these payments the following year. However, that may not help if you’re struggling with cash flow. If you need to reduce outgoings as much as possible this year, make sure to pay before the deadline.
How a Professional Can Help You Avoid Mistakes on Your Taxes
Imagine having a hole in your tax bucket that costs you $1 million.
And your accountant doesn’t even know about it.
Those holes exist for people at all levels of the income spectrum. And they’re often a result of the mistakes covered in this article. The mad dash to complete taxes, in particular, is a dangerous thing. It leads to your accountant not approaching the returns with any sort of strategy.
They just submit them and forget about them.
A true taxation specialist will help you to avoid these mistakes. Plus, they’ll work with you to create a strategy that prevents you from paying too much on your taxes.
You May Also like to Read
Australia has one of the highest rates of household debt in the world - and it might be about to increase even...
Over the past decade, the DG Institute has helped thousands of Australians struggling with debt to regain control of their...
Are you waking up at night worrying about how to repay your out-of-control debt? Well, you don’t need to. With a little...
Unfortunately, more and more Australians are getting deeper into debt. Even before the coronavirus hit, Australia had the...
Unfortunately, bankruptcy numbers in Australia are likely to rise due to the economic fallout from the COVID-19 pandemic....
Financial pressure from the COVID-19 crisis is pushing ever-increasing numbers of Australians into debt which they cannot...