There’s one common expense that Aussies don’t realize they can add to their tax returns — they lose an average deduction of $1936.
In Australia we pay a lot of taxes, but every dollar of tax you can save is an extra dollar that you can save, invest or spend to enjoy your lifestyle more.
For most people, tax is one of the biggest opportunities to move forward faster. But the rules are confusing and complicated and it’s easy to get overwhelmed. This leads most people to bury their heads in the sand or put the load in the basket that is too hard.
But if you tax planning and strategy well, you can retain more of your income and speed up your money progress. It can be complicated, but there are a few key areas to keep in mind: nail your tax planning before EOFY†
Understand your possible deductions
Every dollar of tax deductions you collect will lower your tax bill and you don’t want to leave any money on the table.
You can deduct work-related expenses, investment fees, professional investment and tax advice, self-study expenses, and possibly a whole lot more, depending on your profession and what investments that you currently have.
The most overlooked tax deductions I see relate to self-study and professional development, which can often run into the thousands of dollars in tax deductions per year. Recent data has shown that 30 percent of Aussies spend an average of $1936 annually on vocational education.
For education expenses, the Australian Tax Agency (ATO) has clarified that all self-study expenses are deductible, even if they don’t exactly fall within the area in which you currently work.
You can also generally deduct the cost of subscriptions to content that helps you in your work, such as subscriptions to newspapers or online news sites. This means that in addition to formal studies, short courses, online training or other content-based education can help lower your tax bill.
The ATO website has really useful information about what tax deductions you can claim and what not – educating yourself pays off here.
It’s worth noting that it’s critical that you keep proper records of your deductible expenses if you want to claim them. I talk to too many people who don’t know about their accounting for their entire tax year, only to realize when filing their tax returns that they don’t have the information they need to claim their deductions.
Setting up a digital tax shoebox and keeping your records throughout the fiscal year will make your life easier during tax time and means you can claim everything you are entitled to.
Bring forward (necessary) purchases
If you’re spending on things that are deductible, making the expense in June compared to July means you’ll receive the tax breaks an entire year earlier, saving you tax dollars that you can use to build your wealth (or maybe just to your next vacation).
Spending on something that’s tax-deductible saves you tax, and it makes a lot of sense to bring forward your tax-deductible expenses for EOFY, but it’ll still cost you money even after the tax savings. This means that spending before EOFY will only put you in a better position if those expenses are things you really need.
Sell investments in a loss position
When you sell an investment for less than you paid for it, you are recording a “capital loss” that is reported to the ATO. These losses then offset any capital gains you made in the same financial year. As the investment markets are currently falling, this presents an opportunity to refresh your investment portfolio while saving tax dollars.
If you have made investment gains this fiscal year and have investments in a loss position, selling them before EOFY will lower your investment tax assessment when you file your return.
To assess whether you will benefit from this, look at your investments in the current financial year and confirm any profits you have made. Then look at any investments you have in a loss position to balance your gains.
Keep in mind that investment losses don’t help reduce non-investment income, so unfortunately they can’t lower the tax on your employment income – but given the ups and downs we’ve seen in the investment markets in the current fiscal year, they are selling investments at a loss can make a big difference to your tax position.
Pay deductible interest in advance
When you borrow money for investment purposes, the interest costs on this debt are tax deductible in the financial year that interest costs are paid. This means that if you prepay your interest expenses before the EOFY, you can increase your deductions and increase your tax return.
Get good professional advice
Most people know that your accounting fees are deductible, but don’t realize that investment and strategic tax consulting fees are generally tax-deductible as well. This kind of advice can help you build your investments and wealth faster, and getting a deduction for the cost of the advice will increase the benefit for you.
Most people only think about their tax return after the end of the financial year, but by thinking ahead there is an opportunity to take a number of smart steps this financial year and let you benefit earlier.
Every dollar of tax you save creates extra money that you can use to build your wealth, which then grows every year. Invest the time to get this right and it will pay off in the future.
Ben Nash is a financial expert commentator, podcaster, financial advisor and founder of Turning wealthand author of the Amazon Best Selling Book’Get Unstuck: Your Guide to Creating a Life Unlimited by Money†
Ben has just launched a series of free online money education events to help you get on the first financial foot. You can view all details here and reserve your place†
Disclaimer: The information in this article is of a general nature and does not take into account your personal goals, financial situation or needs. Therefore, you should consider whether the information is appropriate for your circumstances before acting on it, and seek professional advice from a financial professional if necessary.
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