These perfectly legal tax-reduction strategies are right under your nose – they’re widely available, and with a little initial effort can make a significant difference to your overall wealth creation. If you’re not on top of your tax you could be losing easy dollars (that you’ve already made).
June 30th may seem like a long way away but getting organised now will help you reap the benefits when it’s time to submit your tax return. Everybody’s situation is different so it’s important to speak to a qualified professional before making any changes but here are some key steps to get you started.
Understand How It Works
A common misconception is that if you fall into a high tax bracket every dollar you earn is charged at that rate. Instead, the dollar amounts in each new bracket are taxed at different rates. So you will be taxed nothing for the first $18,000 you earn, then 19c for every dollar over $18,200 up to $37,000, then 32.5c for every dollar over $37,000 up to $80,000, then 37c for every dollar over $80,000 up to $180,000, and finally 47c for every dollar over $180,000.
The first thing to know is that when making a deduction you don’t get everything back. So if your marginal tax rate is 32.5% then you only get back 32.5% of what you spend on deductible items. For example, if you spend $100 on your work uniform, you will get $32.50 back in your tax return if your marginal tax rate is 32.5%.
The Australian Taxation Office (ATO) has an extensive list of deductions you can claim, but it’s also worth looking into some of the more obscure items that people often forget to claim. Here are some great work-related deductions, and this list will help you to reduce tax on your investment property. These expenses can include fees for financial advice, account keeping, management fees, interest payments on margin loans and investment property expenses.
Contributing to your superannuation not only boosts your retirement savings but is also an effective way of reducing the tax you pay. Salary sacrifice means making a super contribution from your pre-tax (gross) salary. These sacrificed super contributions are taxed at 15%, which for most people is below their marginal tax rate. This is not just relevant for people close to retirement as the incentive of cumulative interest is even more powerful for younger people who can see much greater returns over time. In this way the tax benefits of super may make it a good way to invest, depending on your overall strategy.
Take advantage of tax offsets
An offset (or rebate) can reduce the amount of tax payable on your taxable income. You may be eligible for offsets if you receive government benefits; if you are a carer; if you are a pensioner; if you are a low income earner or work in particular zones (i.e. rural) or overseas forces. Offsets are also relevant depending on your circumstances regarding health insurance, medical expenses and superannuation. For up to date information on how you can take advantage of tax offsets, check the ATO page.
Remember to keep good tax records
According to taxation law, any expense claims need to have receipts. Keeping track of your purchases and receipts is also the best way to remember what you can deduct come tax time. Store these in a physical folder or save them online. The Etax mobile app even offers a way to save receipts, using the camera on your mobile phone.
Don’t wait until June to get your taxes in order – finding out where you can claim deductions or take advantage of incentives now will set you up for the future. Remember the golden rules are to keep good records and only claim what you are legally entitled to. Engaging the services of a professional to oversee your tax return will also help you to optimise your deductions and final balance.
Want to live the life you really want? The team at Infinite Wealth can provide the education, direction and on-going support you need to reach your financial goals. Get in touch with us today on 08 9438 6333 or click here to contact us.
The information provided is of a general nature and is not intended to be constituted as financial advice. We recommend that you seek independent advice from qualified professionals before employing any strategies outlined.