Summarising your incomings and outgoings for the year can be a tad confronting, especially if you haven’t done a great job of keeping your financial records up-to-date. Here are the most common tax return mistakes.
Even if you’re an employee (rather than a business owner), there are a lot of little things you can claim as tax deductions. While it can be fiddly to figure out what these are and how much you can claim, it’s well worth it when you’re rewarded with that tasty tax refund.
But we see people making the same tax return mistakes every year. This can result in: a lower tax refund than you’re entitled to; a delay in your tax refund getting process; or worse, the ATO auditing your tax return as it’s detected some dodgy deductions.
Here are the top 7 most common tax return mistakes:
(1) Using incorrect figures for your taxable income and tax paid
The fact of the matter is that you can’t fool the ATO. It already knows how much you’ve earned and paid in taxes. It receives this information electronically directly from your employer, anyone you’ve received secondary income from (such as sharing economy platforms), and financial institutions. Sure, you can try and say otherwise, but don’t be surprised if you get a “please explain” letter from the ATO after you file your income tax return.
The good news is that a tax agent can download the income data that the ATO has. This lets you compare notes before you lodge your return.
(2) Claiming the maximum allowable amount for tax deductions that don’t require receipts
First, the good news. There are certain tax deductions that you don’t have to keep receipts for, such as laundry, membership or union fees, and stationary items.
Further, if your total claims don’t exceed $300, then you don’t need to show a receipt for them.
The bad news is that you can’t just claim that total $300 amount. If you didn’t actually spend that much on eligible tax deductions, then automatically claiming the maximum allowable amount brings up a red flag on the ATO’s system. Even though you don’t need to show a receipt for these deductions, the ATO may ask you to prove you incurred those expenses through other documentation.
(3) Not claiming legitimate tax deductions like mobile, internet, home office, etc
If you have to work from home quite regularly, you can legitimately claim mobile phone expenses, internet, electricity, and other home office expenses as a tax deduction.
You need to properly apportion these deductions based on the percentage of time you worked from home. The ATO accepts a four-week itemised diary of these times as representative of the whole year. Working from home for 10% of the year means you can only claim 10% of the home office costs as a tax deduction.
(4) Claiming deductions for personal expenses
The flip side is over-claiming on home office expenses. You need to be able to justify it with a four-week itemised diary. An example of this would be claiming 100% of your home internet bill as a tax deduction, when obviously you would be using this connection for personal use as well.
(5) Claiming self-education expenses for courses that are unrelated to your job
The ATO is nice enough to let you claim expenses relating to courses provided by a school, university, or other training provider. These expenses can include tuition fees, text books, travel expenses, union fees and internet usage.
However, these expenses have to be for upgrading your qualifications and skills in your existing role – it can’t be education expenses for a different type of job. So if you were a plumber and decided you wanted to be an accountant, you wouldn’t be able to claim those self-education expenses.
(6) Being overly creative with your tax deductions
Here’s the thing: the ATO has some pretty sophisticated data-matching technology running in the background. This compares the deductions that you claim against other people in your occupation, industry, location, and age group. It can also compare them against your tax returns from previous years. If your tax deductions look too high compared to their benchmarks, you can expect to hear from the ATO!
(7) Failing to claim tax deductions for ‘gig economy’ work
If you’re an Uber or Deliveroo driver, an Airtasker or have a property on Airbnb, then you’re eligible to claim a variety of tax deductions. Uber and food delivery drivers, for instance, can claim parking, car cleaning costs, Spotify subscriptions, and even the water bottles and mints they offer to passengers. More information about tax deductions for ride-sharing services can be found here.
Skip the not-so-sweet agony of filing your own taxes and making the most common tax return mistakes. Book an appointment with Colby Business Services today, and ask whether you’re eligible for the $1080 tax offset.