Some of your expenses can be claimed as deductions to reduce your financial year’s taxable income. You can take steps to identify which expenses can be legally classified as deductions.
First, you will need to consider whether the expense was directly related to an income-generating activity or your work. Did you spend money for a work-related item but weren’t reimbursed by your employer? Do you have a receipt or bank statement as proof of purchase?
How do Tax Deductions Work in Australia?
During the year, you may have to pay some expenses for work purposes. When the end of the financial year comes, you’re entitled to claim these expenses as tax deductions. This will help you lower the total amount of taxable income and the amount of tax you have to pay.
In Australia, the Australian Taxation Office (ATO) determines which expenses are tax deductible and which ones are not. You can claim tax deductions for most business or work-related expenses, however, you need to make sure you consider:
- Keeping accurate and complete records for your expenses
- Using the correct methods for calculating and reconciling the amounts you claim
- Reporting all income and deductions to the ATO at the right time
Whether you’re an individual or a business owner, it is important to always consult with your accountant or tax professional to make sure you are claiming your tax deductions correctly.
Tax Write-offs and Tax Deductions
When you file your tax return, there are many potential write-offs. A tax write-off is an expense you incur while operating your business. So, it can be claimed as a tax deduction in some circumstances.
While you can’t write off personal expenses, you can claim back the work-related portion.
For example, if you purchase a new computer and it’s 50% for personal use and 50% for work, you can usually deduct 50% of the total amount paid.
The key to managing the deduction process properly is to maintain detailed records. You should keep every receipt associated with expenses you want to claim a deduction for. This is because if the ATO audits your tax return, you will be required to substantiate all your claims with supporting records.
Write-offs can help you save a lot of money each year, but the process can be complicated. If you’re unsure whether something should be classified as a write-off or not, please contact a certified accountant for advice.
Small Business Tax Deductions
If you’re a small business owner, there are several claims you may be able to make at the end of the financial year. Below you’ll find a list of some of the most common tax deductions.
Home Office
If you have a home-based business, you can claim a portion of the following:
- Phone expenses
- Internet expenses
- Printers, printer ink and paper
- Computers, furniture, phones, etc.
You can claim the full cost of the item if it costs less than $300 or, the depreciation in value for those items that cost over $300.
You cannot claim rent, rates or mortgage interest. Nor can you claim general items, such as coffee and milk. But you may be able to claim some council rates.
The ATO offered a working from home shortcut, which allowed you to claim 80 cents per hour for all of your additional operating expenses. This method stopped being used on 30 June 2022. There are other methods to calculate your expenses and these may be more appropriate for your working from home circumstances.
Select the method which works best for you and ensure you meet the criteria for each deduction you plan to claim. Many deductions depend on your personal circumstances.
In some situations, you may be eligible to claim for repairs and maintenance of your business, even if it is to a home office. But be sure to seek advice to ensure you are doing so legally.
Laundry, Clothing, & Dry-Cleaning
If an employer mandates compulsory uniforms but does not refund the cost of purchasing, then employees can claim these costs on their tax return. For example, bakers who are required to wear a clean uniform can claim a laundry tax deduction. If the employer handles the laundering of those whites, however, the employer can claim laundry expenses. So, it is important to keep written records of your costs to make a claim.
Travel
There are certain travel expenses you might be allowed to claim if you or your employee are travelling for business purposes. Expenses may include: air fares, public transport fares, taxi or hire car fares, accommodation and meals. It is important to keep well-documented notes of where and when you travelled for work in order to make claiming expenses hassle-free. We recommend checking the ATO’s travel expenses web page for more information.
Vehicle expenses
As a business owner, you can claim a tax deduction for expenses for motor vehicles – cars and certain other vehicles – used in running your business. The type of motor vehicle you drive can affect how you calculate your claim. A motor vehicle is either a car or an ‘other vehicle’. Common expenses may include fuel and oil, vehicle depreciation, repairs and servicing, insurance and registration.
There are different ways vehicle expenses can be calculated which include the cents per kilometre method and the log book method. Regardless of the method you use, you will need to keep loan or lease documents, details on how you calculated your claim, tax invoices and registration papers. Head to the ATO’s vehicle expenses web page for more information on claiming vehicle expenses.
Education
There are education tax deductions if you enroll in an eligible work-related course. You may be able to claim a deduction for specific expenses related to your self-education or study if the education has a sufficient connection to earning your employment income.
Industry-specific deductions
You can claim expenses specific to your occupation. A photographer could classify a camera as a legitimate business expense, but a writer could not. Conversely, a writer could classify premium grammar and plagiarism software as an expense, but a photographer could not.
Donations
You can claim charitable donations of over $2 if you donated to a deductible gift recipient.
Investments
If you received interest from your savings or dividends from shares, you might be able to claim a deduction.
Property
If you own rental or investment property you can claim land tax and rental property tax deductions. But you cannot claim a mortgage tax deduction for an investment property.
Prepaid expenses
If you incurred a business expense this income year, for something which won’t be completed until a later year, you might be eligible for a deduction.
Other tax deductions you could claim
Depending on your industry, you may be able to claim subscriptions, protective equipment, union fees, and overtime meals. You can even claim some legal expenses.
Income Protection Insurance Tax Deduction
If you pay for loss of income insurance, you can claim a deduction against the premiums you pay. Only the premiums you pay to protect your income are deductible. This is to protect the cover of a continuing salary if you experience illness or injury.
Risks of illness are a serious consideration for sole traders and small business owners, so you need to know when you can and can’t claim a deduction. You cannot claim if your policy pays out a capital sum as compensation for an injury, or if the policy you take is through your super fund and the premium comes from your super contributions. You cannot make a claim for critical care, trauma or life insurance premiums.
Example: Margot pays $250 each month for income protection and a personal injury policy. It is a joint policy, and $150 is paid toward income protection and $100 for injury cover. Margot can claim the $150 against the income protection insurance, but the personal injury cover is not deductible.
This article originally appeared on QuickBooks and was syndicated by MediaFeed.org.
3 fool-proof budgets that can work for anyone
To get an idea of what needs to go in a budget, it can be helpful to review some common monthly expenses:
- Housing: Everyone needs somewhere to live and housing comes with not just rent or mortgage payments, but insurance requirements, utilities, and maintenance costs.
- Food: Alongside groceries, many consumers like to include some room in their budget for dining at restaurants or their morning coffee order they pick up on the way to work.
- Debt: If someone has debt like student loans, auto loans, or a mortgage loan, then they also likely have minimum monthly debt payments that they need to pay or they risk incurring fines, hurting their credit score, or losing collateral.
- Medical Expenses: From health insurance premiums and copayments to prescription medications, there are a lot of expected medical expenses that recur each month.
- Fun Spending: What’s life without a little fun? While going to the movies, traveling, or buying home decor may not be necessary expenses, we all spend a little money on the things that bring us joy.
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When it comes time to sit down and actually create a budget, these are the steps you can generally take to make a monthly plan for your money.
- Step 1. Identify all sources of income. The key to knowing what you can do with your money each month stems from knowing just how much income you have coming in. You should tally up all regular sources of income such as paychecks from a job, rent money from a property you own, or revenue from a small business or side hustle.
- Step 2. Write down ongoing necessary expenses. There are some expenses that pop up every single month no matter what. The necessary ongoing expenses such as rent, car payment, and groceries are what need to be written down first. Tally up that amount to see how much is left for other expenses. Don’t forget to include minimum debt payments here.
- Step 3. Take a cold, hard look at unnecessary spending. Pull receipts or credit card and bank statements for the past three to six months to get an idea of where any unnecessary spending is occurring. See what expenses can be cut (like pricey subscriptions or impulse purchases) to determine how much money needs to be set aside for unnecessary expenses.
- Step 4. Set financial goals and rework the budget. Once it’s clear how much extra money is available for non-necessary expenses each month, it’s a good idea to think about how some of that money can make accomplishing financial goals like paying off debt or saving for retirement easier. After setting goals, look back at the budget as a whole to see where expenses can be cut to make room for these goals.
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Everyone’s monthly budget is unique to them and their personal and financial needs, but generally, this list is an example of monthly expenses:
- Food
- Housing
- Utilities
- Phone
- Transportation
- Health care
- Pet care
- Debt payments
- Retirement contributions
- Savings contributions
- Discretionary spending
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There is no one right way to budget and some people find different budgeting methods work better for them. Let’s review some popular examples of monthly budgets to make it easier to visualize how budgeting can work. (Learn more atPersonal Loan Calculator).
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Some people find it easier to stick to a budget if they’re spending cash instead of using a credit or debit card to make purchases. This is why the envelope system is such a popular budgeting method.
The way this method works is the budgeter allocates a certain amount of money for major spending categories (food, gas, utilities, etc.) and then places that exact amount of cash in an envelope with the expenses written on it. Once they empty an envelope, they can no longer spend money on that type of expense unless they decide to cut another expense and put money from a different envelope into the empty one.
To boost savings, don’t forget to participate in the envelope savings challenge!
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If you need help determining how to spend your money, you may prefer a budget that guides you more. With a 50/30/20 budget, 50% of take-home pay goes toward necessary expenses, 30% is spent on discretionary spending, and 20% is put towards financial goals like paying off debt early or building an emergency savings fund fast.
There’s no need to stick to this allocation exactly. For example, there’s no harm in spending a smaller percentage of take-home pay on discretionary spending and more on financial goals, but this general framework can help budgeters make an effective plan for their money without feeling deprived. (Learn more atPros and Cons of Personal Loans
https://www.sofi.com/learn/content/pros-and-cons-of-personal+loans/
).
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One way to stay really disciplined with budgeting is to set a zero-based budgeting plan. What this means is that every dollar of income that comes in each month is “assigned” an expense, down to the last dollar. This doesn’t mean that every dollar must be spent. Allocating money to go into a savings account counts. If someone struggles to save due to spending temptations, they may really appreciate this approach.
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It’s easy to give up on budgeting after getting off track, but the secret to making a budget work is a mixture of reflection, adaptability, and perseverance. Take some time at the end of the month to reflect on what went right and what went wrong. If you keep overspending in one category, but there’s frequently money left over in another category, then it may simply be time to adjust your budget.
Once someone revamps their budget, they can make easier progress toward reaching their savings goal. This is where a savings account can really come in handy. Need a new savings account? Lantern makes it easy to quickly compare interest rates, fees, and account minimums at different banks at the same time. That way, consumers can find the right savings account to help them reach their financial goals.
This article originally appeared on SoFi.com and was syndicated by MediaFeed.org.
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Communication of SoFi Wealth LLC an SEC Registered Investment Adviser. Information about SoFi Wealth’s advisory operations, services, and fees is set forth in SoFi Wealth’s current Form ADV Part 2 (Brochure), a copy of which is available upon request and at here. Liz Young is a Registered Representative of SoFi Securities and Investment Advisor Representative of SoFi Wealth. Her ADV 2B is available at here.
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