Six tax tips for individuals that may help you to pay less tax

When completing your tax return there is likely to be one key question on your mind:

How can I do my tax so that I don’t pay a single cent more than I have to (without breaking any laws)?

That’s where this article may be able to help you. The following are some key tax tips for individuals that may help to lower your bill.

Tip #1 – Understand the current tax rates

Australia has a staggered system for income tax. This means that you pay varying amounts, depending on how much you earn.

These are the resident tax rates for 2020–21:

  • $0 to $18,200 – Nil
  • $18,201 to $45,000 – 19% (19 cents for each $1 over $18,200)
  • $45,001 to $120,000 – 32.5% ($5,092 plus 32.5 cents for each $1 over $45,000)
  • $120,001 to $180,000 – 37% ($29,467 plus 37 cents for each $1 over $120,000)
  • $180,001 and over – 45% ($51,667 plus 45 cents for each $1 over $180,000)

For example, let’s assume that you earn $150,000 per year. Using the table above, we can calculate your income tax as follows:

0% on the first $18,200 = $0

+

19% on $26,800 = $5,092

+

32.5% on $75,000 = $24,375

+

37% on the $30,000 over the $120,000 threshold = $11,100

=

Total tax payment of $40,567.
Note that this does not take any levies or surcharges into account.

Understanding how to work out how much you owe will give you a baseline figure to work from. It’s important to know this figure, as underpaying could lead to trouble with the Australian Taxation Office (ATO). You can also work from this figure when calculating deductions, offsets and levies.

Tip #2 – Deduct charitable donations

You may be able to claim a deduction for any charitable donation you make over $2.

You should find a “Charitable Donations” section in your tax form. Retain the receipts for any cash donations you’ve made over the year. Add them all together and write the total in this section of the form.

It’s important to note that you won’t receive the full donation amount back as a tax refund. Instead, the ATO subtracts the donations from your assessable income. As such, you will receive a percentage back, which varies depending on your income. Make sure you retain the receipts for any claims that you make.

Tip #3 – Catch the deductions that many people miss

There are many deductions that you may be able to make. However, many individuals overlook some of them at tax time. These are among the most common missed deductions:

  • A percentage of your mobile phone bill
    • This applies if you’ve used your personal phone to handle anything related to your work. It’s a good idea to log every call you make so you can highlight those related to work for your claim.
  • The fees you pay for a membership to a union
  • Any fees paid to tax professionals when preparing your returns
  • Claims related to working from home
    • If you work entirely from home, you may be able to claim an occupancy cost.
  • Claims related to using your car for work
    • Note that you cannot claim for the cost of driving to and from work. However, you may be able to claim a deduction for any driving you do in your own car as part of work. For example, taking a trip to another office during the workday is a possible deduction.

Note: The Government has introduced the shortcut method for those who work from home during the COVID-19 period. It covers the selected working-from-home expenses.

When people ask the question “Do I need an accountant?” we point to these types of deductions. Many individuals aren’t aware of these opportunities and can end up paying hundreds of dollars more than they should.

Tip #4 – Check the Medicare levy surcharge

According to the ATO, the majority of income-earning Australians pay a 2% Medicare levy on their gross income. On top of this, some Australian’s pay a Medicare surcharge of between 1% and 1.5%. This typically applies to families that earn more than $180,000 and individuals who earn over $90,000.

However, this levy only applies if you do not have private health insurance.

That’s why it’s a good idea to check the surcharge against the cost of insurance. You may find that you can get insurance for less than 1% of your gross income. If that’s the case, purchasing the insurance could save you money on your tax bill, assuming you meet the above criteria.  Not to mention the protection this insurance provides for you and your family if an unforeseen medical issue arose.

Tip #5 – Keep good records

Failing to maintain records is a big mistake that many individuals make. It leaves you rushing around as tax time approaches. As a result, you may miss deductions or miscalculate the amount of tax you owe.

It’s a good idea to create a system for maintaining your records.

Aim to spend about 10 minutes every week logging all relevant receipts into this system. It’s also a good idea to calculate your work-related expenses during this time. Maintain a folder to store all this information, so you can work through it quickly when preparing your taxes. If you have an accountant, these records will make their job easier too.

Tip #6 – Are you looking forwards, or backwards?

Our experience shows that people get the most out of tax time when they come prepared with:

  1. Absolute clarity on your top 3 financial and personal goals. Including timeframe and approximate costs.
  2. An understanding of their financial concerns. What is keeping them awake at night?
  3. Being open to discussing all options. Imagining if they could make more money, reach their goals and save tax.
  4. Set their own agenda for a wider discussion. Email their answers to step 1 and 2 to their accountant when they book their tax time meeting.

After all, financial security is more than just saving tax!

Are you ready for tax time?

With these tax tips for individuals, you now have a better understanding of how to do tax.

If you have any further questions relating to the above or require any assistance, please do not hesitate to get in touch with us via your Banks Group representative, (03) 9810 0700 or info@banksgroup.com.au.

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