Introduction to Pay Less Tax in Australia
Nobody likes to pay extra taxes. Everyone wants to know how to legally minimize their taxable income. Paying taxes may feel like a daunting task, but with the right strategies you can actually end up saving a lot of hassle down the road.
Plus, breaking the rules to save tax money never really takes you too far when it comes to legal work. In Australia, tax fraud is a serious criminal offense and you can go to jail for lodging incorrect tax returns with the Australian Taxation Office (ATO).
Having said that, there are a few great ways to reduce your taxable income with the help of some financial planning.
Spending some quality time to strategize your finances can help you save some money during tax time. So what are the best ways to pay less tax in Australia this financial year? We have listed below the top 5 ways:
Donate to Charity:
It’s always a good idea to donate because the amount you donate is claimable on your tax return. In fact, any donation over $2 to a registered charity is tax-deductible.
You can only claim a tax deduction for donations made to organizations that have DGR (deductible gift recipient) status.
The donation can be of money or property which also includes financial assets such as shares. You will be given a receipt of donation from the charity which you can claim when the tax time comes.
However, these donations won’t reflect immediately in your tax refund. It will come back to you as a percentage after it is subtracted from your taxable income.
This is by far the best and most sophisticated method to save taxes. Salary sacrificing essentially means shifting some of your income towards a benefit before it is taxed.
For instance, let’s consider superannuation. With salary sacrificing, you can switch to a lower superannuation contributions tax on your income instead of what you would initially be paying.
The super contributions are taxed at a rate of 15% which is very low as compared to them being taxed at a marginal rate, which can sometimes be up to 49%.
You can even do this with your bonus before your bonus entitlement is confirmed to save taxes on it as salary sacrificing can only relate to future income and not past income. It is important to remember that there is no income tax limit on salary sacrifices.
Make sure to claim everything:
You must declare all deductions – whether small or huge, to pay less tax in Australia. Make sure to include and claim everything work-related in your tax deduction.
Anything that relates to your job or your income, you can claim it. Even if a purchase was made partly for personal reasons and partly for work, you can still claim the part that was for work purposes.
If at any point you are unsure whether you can claim a particular item, save your receipt and get advice from your tax accountant when filing time comes.
It is advisable to hold on to any receipts and not be able to claim them rather than to throw away the receipt that could have saved you some money.
Another way to reduce taxable income is to strategize and adjust your income with your spouse. This can be very beneficial in saving a lot of tax money as it balances out the overall taxable income.
For example, the spouse who earns higher could put the additional tax income into their spouse’s account in order to pay fewer taxes on it.
Another good example of this could be shared investments. It is recommended to invest money in the name of the less earning spouse since they will have to pay lesser tax on the interest being earned on that investment.
Maintain accurate tax records:
For tax deduction claims, you need accurate receipts to provide the ATO. Since the ATO can question these claims, you need to maintain accurate financial records.
Failing to do so can lead to a lot of trouble during tax time. Unfortunately, every year a lot of people lose their hard-earned money to the ATO because of poor tax records which eventually leads to missing deductions they could have legally claimed.
It is a common myth that keeping tax records is difficult. Keeping track of everything can actually be exhausting. To make things easier, you can keep track of the deduction receipts which eventually will be easy to remember when the time to claim comes.
Use offset account:
Having an offset account can help a lot in reducing your taxable amount. If you fulfill certain requirements, tax offsets can minimize your taxable income but they won’t get you a tax refund.
For example, in the case of a home loan, you can use a mortgage offset account. This helps you in balancing your non-deductible interest on the home loan with interest on the taxable earnings of money in the form of a deposit.
So by shifting savings toward your home loan instead you actually end up saving a lot as you are no longer taxed on that money.
You can take advice from a financial advisor for lowering your mortgage interest costs too with the help of an offset account.
Take help from a tax agent:
Getting expert help often pays off well. After all, an expert has inside knowledge and industry-specific expertise and knows more than you ever can.
A tax expert will be aware of deductions you’re not and this can save a lot of your time and effort when it comes to filing your taxes.
It goes without saying that taking help for your taxes from a reputed tax agent will get you a substantial tax refund without having to take any illegal steps.
Further visit: How to pay taxes and don’t overpay! Tips and tricks
We hope the above-mentioned ideas have helped you learn how to reduce your taxable income and keep more money in your pockets.
When filing taxes, it is imperative to meet the ATO deadlines in order to avoid any penalties. more information to visit:-https://www.nexzenaccounting.com.au/