How to reduce your personal tax
Everyone needs to pay their taxes, but many Australians end up paying more than they need to.
Below, you’ll find 14 tips to help reduce your tax liability, and maximise your total income.
Be aware of what you can claim
Any money you spend on things related to your job can be deducted from your taxable income. For example, if you needed to buy a new uniform, you could claim that as a tax deduction, and a portion of the uniform’s price will be taken off of your tax bill.
Even if you buy something that you also use in your personal life (like a new laptop), you may be able to claim it as a tax deduction.
Keep all financial & tax records
Claiming deductions is an easy way for you to reduce your tax, but when you file your tax return the ATO may ask for receipts for your claims. If you can’t provide these receipts, the ATO may deny these claims, and charge you more tax than they would have.
To avoid this, remember to keep records and receipts throughout the whole financial year.
Make donations
Another deduction you can claim from your tax are donations you make. As long as you donate to a registered charity, and your donation is more than a few dollars, you can claim it as a tax deduction.
Just remember to hold on to the receipt of your donation, the same way you would any other tax deduction.
Salary sacrificing
Salary sacrificing, also called ‘salary packaging’, is when your employer puts a portion of your pre-tax income toward a benefit (such as your mortgage, insurance, etc), thereby reducing your taxable income.
Make sure to ask your employer what salary sacrificing benefits they offer, as this can be a great way to lower your tax liability.
Use your super
Concessional contributions to your or your spouse’s super are often taxed at a lower rate than your income tax. If this is the case for you, maximising your super contributions are a great way to minimise your tax liability.
Use a mortgage offset account
A mortgage offset account is a bank account that’s connected to your home loan.
Money you’ve deposited into this account will be offset against the amount owing on your home loan when it's time to pay interest.
Private health insurance
Depending on your income and the size of your family, it’s possible that private health insurance will actually cost less for you than the Medicare Levy Surcharge you’d need to pay without private insurance.
If you’re someone who pays more for the Medicare Levy Surcharge than they would for private cover, then you may be able to lower your tax, while also reaping the benefits of private insurance.
Minimise capital gains & minimise taxes
Every year you’ll be taxed on money you made from selling assets: whether they be shares, property, or anything else. There are, however, a number of ways you can minimise this tax, depending on what type of asset you have.
Make sure to research ways you can minimise your capital gains, as this will help minimise your taxes.
Prepay expenses
Not all your tax deductions have to be from the current financial year.
If you plan ahead and purchase something you’ll need to earn income next year, you can claim it as a tax deduction now.
Delay income
Depending on your employment type, it may be possible to delay when you receive your income.
If so, it might be worth delaying some of your income until after the EOFY. This means you won’t have to pay tax on that income for another whole year.
Make use of offsets
Tax offsets, also known as tax rebates, can help you lower your tax bill depending on your situation.
The Australian Government has a list of tax offsets you may be able to claim here.
Be aware of what is non-taxable income
Not all types of income are taxable. The ATO considers some types of income, such as government allowances, to be non-taxable.
Knowing which of your income streams are non-taxable can help you lower your tax liability.
Follow ATO deadlines
Researching ways to minimise your tax liability is useful, but make sure not to take too long.
If you’re late to file your tax return, the ATO may fine you, and all your hard work will have ended up costing you money.
Use a tax agent
When it comes to the end of the financial year, hiring a professional accountant to handle your taxes can save you not only time, but money as well.
This is because they have years of knowledge and experience on how to minimise your tax bill and maximise your tax return.
To discuss your finances with an expert tax accountant,
get in touch with us