Tax tips - maximise your deductions to minimise your tax
The aim is to pay NO TAX! Just kidding – that’s impossible if you have a profitable business or you are earning money. Tax is inevitable but there certainly are ways to make sure you take advantage of your options to:
Reduce your taxable income
Increase your tax deductions (i.e. claim everything possible)
Increase your deductions this year (i.e. move your deductions forward to this financial year)
Reduce your tax
Most people complain about accountants’ fees but:
Most people have limited knowledge about how to reduce their tax – only accountants know the tax laws which constantly change
The people that do their own tax returns (especially business owners) are more likely to miss out on valuable deductions
Quality accountants will go the extra mile to claim every last penny and they earn their fees, in the tax they save their clients
So what do you want to know – that’s the burning question?
YOU WANT TO KNOW HOW TO REDUCE YOUR TAX BILL THIS YEAR. AM I RIGHT?
Delay your invoicing till after 1 July – You could wait till after 1 July to invoice your clients so that the income falls into the next financial year. This usually applies to unfinished jobs.
Bring forward asset purchases to before 30 June – Take advantage of the new immediate write-off for small business assets costing less than $20k (used to be $1k). For example, you could purchase a new work vehicle using finance and claim up to $20k this financial year.
Prepay your expenses in a lump sum before 30 June – For example, annual insurance premiums.
Bad debts – Write-off invoices that you know your clients won’t pay. Go through your outstanding invoices and identify the ones that are most likely to be bad and deduct them.
Repairs & maintenance – Do you need to do this anyway? Why not do it before 30 June.
Stock up on materials and supplies before 30 June – Buy before 30 June so you can claim the deduction.
Pay employee’s superannuation before 30 June – Pay your employee’s superannuation for this last quarter (April to June 2016) before 30 June so you can claim it as a deduction. If you wait and pay it after 1 July, you can only claim it as a deduction next financial year.
Undertake a stocktake – Work out if any stock is obsolete, defective or unsellable and write the value off as a deduction.
Include all asset purchases – If you purchased assets during the financial year that partly or fully relate to earning income, then make sure you keep track of them so that depreciation deductions can be claimed.
Scrap assets you no longer use – You may be able to claim a tax deduction, this financial year, for scrapped assets. This depends on whether the assets are still being depreciated.
Home office expenses – If you operate your business from home or you work from home as part of your employment, you can claim home office expenses.
Split your income – If you operate a business, then you may be able to split your income with your partner/spouse to reduce your overall tax as you can both take advantage of the $18,200 tax-free threshold.
Take out private health insurance – Singles and families that do not have adequate private health insurance cover will be liable to the Medicare levy surcharge equal to 1-1.5% of income. Avoid this surcharge if your income is more than $90k as a single and $180k as a family, by taking out the right private health insurance before 30 June.
Work-related travel – All employees or small business owners that use their personal car for income-producing purposes can claim 66 cents per km travelled so make sure you write a list of all work-related travel: date and kilometres travelled (you can use google maps to estimate the kilometres).
Travel expenses – If you travelled away from home for work or business, then you can claim the transportation, accommodation and meal expenses. Make sure you keep track of all these costs.
Work related clothing – You can claim work related protective clothing (e.g. steel capped boots, helmet, gloves, equipment etc.), compulsory work uniform (that usually has a business logo) and occupation specific clothing (e.g. nurse’s uniform).
Work related self-education expenses – You can usually claim costs incurred to further your education such as tuition fees, textbooks, journals, transport costs, equipment, computer, printer, internet, home running expenses etc.)
Cost of managing your tax affairs – Don’t forget to claim your tax return fee, your accountant’s fee, travel to your accountant or solicitor etc.
Other work-related deductions – Include calculator, computer, conferences and seminars, first-aid course, insurance for equipment and tools, legal fees, licence registration fees, membership fees, postage, professional subscriptions, telephone/mobile, tools and equipment, union fees, watch etc.
Donations – Make a list of all donations made over $2 each (e.g. MS Lottery).
Pay bonuses, directors’ fees and dividends before 30 June – If your business is likely to make a profit, discuss minimising your overall tax liability with your accountant, by distributing the business profits. There is a lot to consider so its worth getting expert advice.
50% capital gain reduction – if you sell an asset or investment property and make a profit on the sale (i.e. a capital gain), the gain me be reduced by 50% so you only pay tax on 50%.
Claim capital allowances and capital works deductions on your rental properties – So many people miss out on this because they don’t have the right reports and documentation. Ask your accountant so you can claim it as a lot of accountants miss this and it can be worth thousands.
Income protection insurance – Many business owners don’t have this valuable insurance and its fully tax deductible so worth considering.
Distribute trust income to minors – A distribution to a minor from a discretionary trust is tax free up to $416 but you need to have the trust minutes for the distribution signed before 30 June.
Pay superannuation personal contributions before 30 June – You can claim a deduction for personal superannuation contributions of up to $30k ($35k if you are over 49 years old).
Superannuation income – If you are over 60 years old, you are generally not taxed on your superannuation income. If you are between 55 and 60, you are taxed concessionally.
Superannuation rebate – A rebate of up to $540 is available if you pay superannuation contributions before 30 June for your spouse that has a taxable income of less than $10,800.
Superannuation co-contribution – for every $1 you personally contribute to your superannuation fund, the government will contribute $0.50 up to a maximum co-contribution of $500.
As always – make sure you keep receipts for all tax deductions for at least 5 years. You can keep the receipts in electronic form provided they are securely backed-up.
If you operate a small business as a sole trader or a company – have you considered changing to a partnership or family trust structure to split your income and reduce your tax? Ask us why and how.