It is often said that there are two things that are certain in life — death and taxes.
Early in my career I worked for the infamous Kerry Packer. His view was not to pay a cent more than you have to, as the government doesn't spend it too wisely. In those days we spent a lot of money to save tax. So in Kerry's eyes only one thing was certain — and that was death.
My top 10 tax tips for 2011:
1. Keep your receipts and be organised. It your think something may be deductible, keep the receipt and check. Better still, keep a diary and record your expenses and what you have been doing work wise.
2. Superannuation is one of the most tax effective vehicles. Consider setting up your own self-managed fund and rolling over the balances from your other funds. Remember super funds can now borrow money to invest in real estate or shares.
3. If you have a rental property, don't forget that in many cases depreciation on the building can be claimed. This is often missed.
4. Pay deductible expenses as close to June 30 as possible to minimise the cash flow impact.
5. Be smart about how your investments are held. Maximise the use of the tax scales to ensure income is earned by the family member with the lowest income and losses flow to the family member with the highest income. Even better would be to use a family trust so that there is true asset protection and income sharing.
6. If you use your car for work, keep a log book AND keep all your expenses for the year. It will allow you the option of selecting the best method of claiming the cost of running your vehicle — rather than just the easiest method.
7. Keep track of your interest and provide tax file numbers to your bank so that you don't have tax deducted until you lodge your tax return.
8. Superannuation provides great tax saving benefits. Salary sacrificing or contributing to your low income earning spouse's fund can give great tax benefits.
9. Prepay a year in advance the interest on your investment property so that you can claim the deduction now. The same can apply to repairs.
10. Get good professional advice. If you pay a lot of tax, seek help. Accountants are professionals and it is there job to be worth more than they charge. Remember they do this every single day, whereas in your case, it is a once a year exercise and every year things change.
Next page: The five common mistakes people make in preparing their tax
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The five most common mistakes people make in preparing their tax
It is both costly and risky to make mistakes in preparing your tax. It is hard enough to earn your money, don't throw it away by making costly blunders.
The ATO even try (believe it or not) to help you. Each year around June they send out letters to taxpayers that may be under or over claiming expenses to warn them of the law and what they can claim. In March or April the following year their data matching process sends out letters to taxpayers who have missed declaring income. This is usually accompanied by a tax notice with fines and penalties. So don't get caught with simple mistakes, the ATO will usually catch up to you.
The most common mistakes in 2010 were:
1. Missed income. Have you changed jobs this year? Have you earned interest from a bank account that you forgot about? Missed or forgotten income is the most common mistake, especially when it was earned early in the financial year. Make sure you consider all income sources and declare them.
2. Missed deductions. I am often surprised out how many items are forgotten or missed. Its taking some probing to check that yes, you use your car for work, yes you did travel to a seminar and paid the cost yourself. This is the second most common mistake. People don't always realise that things they have, like rental property expenses, are deductions. Investigate deductions before you lodge your return. You might be surprised how many additional items may be deductible.
3. Lodging an incomplete form.Simple things like forgetting to include your date of birth, signature, or even your tax file number. This results in delays because the ATO will need to send your return back and this will hold up your refund. If you use e-tax this is an easy way to make sure every part of the form is completed.
4. Not include Medicare levy information.Remember: if you qualify for a reduction in the Medicare Levy Surcharge, you need to put that information on your tax return, otherwise you will be charged.
5. Not claiming rebates such as spouse, medical and education rebates to name a few. Some people even miss taking up dividend franking credits. While some rebates have been thresholds and can be confusing, don't be fooled into thinking because it is too hard, you won't claim them. They may be worth the extra time to research what you are entitled to claim.
These are the five most common mistakes and tips on how to avoid them. Before you prepare your taxation return, give this list a quick review. Refunds are always better in your pocket, so don't delay in lodging your return. If you are unsure of anything engage a professional tax agent to help you maximise your refund.
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