With the financial year almost upon us, it’s a good time to start thinking about preparing your tax. We’ve put together some helpful tax tips, that you should completing ahead of June 30 to help you get ready for tax time 2021.
Preparing things like organising your paperwork, prepaying any expenses in this financial year and setting up a budget for the new financial year.
Organise your paperwork
When it comes to preparing for tax time, the more organised you are, the less stressful the process and the more likely you are to maximise your deductions.
Start gathering together all of your records and receipts, along with:
- A copy of last year’s tax return.
- Records of any sales or purchases of shares, business or property.
- Private health insurance details.
- Your spouse’s details (if applicable).
- Children’s details including date of birth.
- A list of all your income, including payment summaries, rental income, interest and dividends and any foreign income.
- A list of all your expenses, including work-related expenses, donations, self-education expenses and accountant fees.
If you’ve been working from home for any part of this financial year, ensure you have everything you need to claim a deduction for your home office expenses. In response to COVID-19, the ATO has introduced a shortcut method which can be used when claiming deductions for the 2020-2021 financial year.
The shortcut method allows you to claim 80 cents for every hour worked from home over the year, but you must have kept a record of the hours you’ve worked from home in either timesheets, a roster or a diary.
Working from home tax deductions can include the following:
- Cleaning costs
The expenses incurred from cleaning office space at home.
- Office furniture
Purchase and repair costs for office furniture and fittings required to do your job.
- Your phone bill
Landline and mobile phone calls related to work matters (you should get an itemised phone bill and highlight the work-related calls)
- Your home internet bill
You can claim a portion of your monthly internet bill, in line with how often you use it for work purposes.
- Electricity bills
You can also claim a portion of your home electricity bills, in line with how often you work from home.
Amazingly, you can also claim a portion of your occupancy expenses, like rent, mortgage, and home insurance, so long as you operate your business solely from your home and have a dedicated space for business activities. It’s important you claim working from home expenses correctly, to avoid a penalty from the ATO. You’ll need to show evidence and your calculations to justify how much you’re claiming. A tax agent can do this for you to ensure you’re claiming correctly.
Understand the expenses you can claim
Many expenses that you accumulate through your chosen career path can be claimed in your tax return. However, many cannot, and incorrectly claiming these may result in a penalty from the ATO. Some are more obvious than others, like an apprentice’s tools or travel expenses.
However, did you know that journalists may be eligible to claim their pay TV costs? So long as these are incurred in the course of performing their work (for example, a sports journalist that needs to have access to the sport channels), they can be claimed as deductions. There are thousands of things you may be eligible to claim as work related expenses.
Here’s a few examples that you might be eligible for:
- Tools and work-specific clothing
The item is needed to perform your job e.g., tools that tradesmen use, equipment that hairdressers use, special shoes such as steel cap boots.
- Safety items
Item’s needed for self-protection or safety when doing your job e.g., sunscreen and sunglasses if you are required to work outside
- Laptops and mobile phones
If these are used for work purposes, you’re able to claim it on tax (if you have a laptop that you use for work and personal use, you’re only entitled to claim the portion that you use for work).
- Courses and conferences
Self-education expenses, such as courses and certificates, need to be directly related to your profession and will help you get a promotion or a pay rise.
We recommend reading claiming deductions to ensure you understand what you can and cannot claim. The ATO have a handy myDeductions app that can will help keep all your tax deductions and income records in one place and make doing your tax return easy.
Check your records are complete and accurate
It’s important that you understand what records you need to keep and ensure that they are complete and accurate. You need to keep most records for five years, store them in a safe place, and they must be in English (or easily converted to English). Check out the ATO’s record keeping page for more.
You can also use our record keeping evaluation tool to help you check how well you’re keeping your business records so you can make improvements in the future. Find this on the ATO’s record keeping evaluation page.
Prepay expenses in this financial year
If you expect your income to be lower in the next financial year, you could boost your tax refund for this financial year by paying for any expenses before June 30. That way these expenses are included in this year’s tax deduction.
Prepayments are payments that are made in one reporting period for goods or services that will not be received until a future period or are received over a longer period. This is often the case for expenses spread over several months (subscriptions or insurance premiums) and where the expense relates to separate financial periods.
For example – A company makes a prepayment of $19,000 on 1st March 2020, for a service from 1st April 2020 to 31st January 2021. This satisfies the 12-month rule, as it runs for less than 12 months and finishes in the next financial year; therefore, the entire cost can be expensed immediately.
Some examples of common prepayments are:
- Airfares and accommodation
- Contract payments
- Booking for conferences, major events, etc.
Take advantage of small business concessions
You may be able to reduce your tax bill if you are eligible for concessions such as instant asset write-off or immediate deductions for prepaid expenses. You may also be able to save time by estimating the value of your trading stock instead of doing a stocktake.
Find out more about the different types of concessions at the ATO’s concessions at a glance.
Budget for the new Financial year
To get control of your spending and work towards achieving your financial goals, it’s a good idea to set a budget for the new financial year. A monthly budget is a useful financial planning tool that allows you to plan how much you will spend or save each month, while tracking your spending habits. A budget is an important part of keeping your financial house in order!
It is best practice to prepare a budget based on your pay cycles. Using a spreadsheet is an easiest way to set up a budget, so it can be updated when your circumstances change. If you are not sure what you spend, start by looking at bank balances and old credit card statements; you will be surprised by what you see. Alternatively, personal budgeting software such as You need a budget can also be very helpful.
The most vital thing when it comes to a budget, is to be honest with yourself about your spending habits. Once you have a solid budget, the job is only half done.
Don’t forget about charity donations
There are just a few things you need to check before claiming a gift or donation. This is one of the most common things people forget to claim, or incorrectly claim as a tax deduction. If you’ve only dropped some spare change in a bucket at a convenience store counter, you’re probably not eligible to claim this as a tax deduction. However, if you are one of the many who make regular contributions to a charity every month, you may be eligible to claim something back at tax time.
For more information we recommend visiting ATO’s Gifts and Donation.
It’s been an unusual year, and for many of us, that’s meant a change to how we work. Along with any disruptions to income, there may also have been extra expenses relating to a home office. To ensure you’re prepared for tax time, it’s a good idea to start getting organised now.
At Oracle, we use our extensive expertise and knowledge to go above and beyond to ensure the best possible tax result for every client.
If you’d like to talk to someone about your financial situation or completing your tax, we can help.
Contact us today for a complimentary consultation to see how we can help relieve your stress from personal accounting and taxation.