‘I wish I knew this years ago.’
This is a common sentiment of individual Australians whom we’ve helped maximise their tax returns over the years. This is usually followed up by a few minutes of lamenting how much extra money they’ve handed to the Australian Taxation Office (ATO) when they didn’t need to.
We understand. The knowledge you’ve paid too much tax is a bitter pill to swallow.
You see, only a few Australians take control of their tax. It IS boring. And people ARE busy. It’s the absolute LAST thing you want to do – until you need to do it. And like the seasons, tax time comes around every year. There’s no getting out of it.
Over the past 50 years, we’ve helped hundreds of thousands of people with their tax and most say they wished they knew what they were doing while they were young – even as young as having their first job. The advice of the older? Get learning when you’re young, and today’s millennials are no different.
Most millennials who come to us have little to no prior knowledge of how tax even works, let alone understand what tax deductions actually are. You can understand their excitement when they start saving on their tax refunds to invest back in themselves. Taking control of your tax is a good feeling, and we want to share this excitement. Here are the three top most common mistakes millennials’ make with their tax in the hope with this knowledge they don’t say – ‘I wish I knew this years ago.’
Waiting For A Real Job To Start Claiming Tax Returns
There’s no such thing as a real job. If you earn over $18,200, you’re required to pay tax and because you’ve earned an income, you’re also allowed to claim tax deductions.
Starting a dog walking business, washing dishes, waiting tables are valid ways to earn an income but we see people writing off the way they earn their income as having no available tax deductions time and again.
There are tax deductions to be made with every job.
No job is too little or too great where tax deductions can’t be claimed. You just need to understand what they are and how to claim them.
It’s easy to fall into the mindset that your job is ‘too humble’ to claim a tax deduction, or ‘it doesn’t matter’ or ‘I won’t get much money back anyway’. Your mindset tricks you into thinking that you won’t get much money back, so why try in the first place.
You think the tax you pay on a ‘humble job’ is fine. It isn’t much. You’ll look into claiming huge amounts of tax deductions when you get a ‘real’ or ‘high-paying job’ because that’s when you’ll get the big returns.
Consider this – if you earn even a few hundred dollars more than the lowest threshold and claim enough tax deductions to bring your income to beneath the threshold – you’ll get all of the money you paid in tax back in your pocket!
If you’re a kitchen hand, you may be able to claim the cost of the first aid course you did for your job, travel expenses you may have incurred between work places, union fees and other subscriptions. Are you required to wear a uniform and you were out-of-pocket paying for it? Claimable. Do you need to wear steel-capped boots for OH&S requirements at your workplace? Claimable. Did you need to purchase a heat-resistant apron to keep yourself safe? Claim it. Did you know about any of these tax deductions before-hand? It might be time to brush up on your tax deductions skills and understand what and how you can claim. Once you have the skills and help you need to claim under your belt, you’re better equipped to keep your money where it’s meant to be – in your own pocket.
DO YOU KNOW WHAT TO BRING TO YOUR TAX APPOINTMENT? READ OUR TAX RETURN CHECKLIST.
You Use Your Friends As Benchmarks
Have you heard of the myth of the invisible ships? It goes like this: When Captain Cook / Christopher Columbus / Ferdinand Magellan arrived off the coast of Australia / Cuba / South America, the native people either ignored them or didn’t see them because the huge ships were so out of their field of knowledge that they couldn’t perceive what they saw. It wasn’t in their realm of experience and so they literally ‘failed’ to see the ships.
We all know that just because something may be invisible to you, it doesn’t mean it can’t affect you.
When you’re young, it’s easy to ignore the tax you pay. You lodge your tax return because you have to. You use a free option because it’s quick and easy and you have so many better things to do. You don’t question tax deductions you miss out on. You literally don’t see them because you don’t know what they are. To you, they don’t exist.
Similarly, if your friendship group or family don’t claim as many tax deductions as are available to them and they don’t talk about tax or finances at all, these ideas may not cross your mind. For example, if you’re a sole trader and you have a large, tax deductible expense and your income this year will push you up into a larger threshold, it may be best to purchase your item before the end of the financial year to lower your taxable income into a lower threshold, reducing your tax. Claiming tax deductions may require more knowledge than you know or have been taught.
It might pay to look around you. Do some research. Open your mind to the possibility of reclaiming your money. If you want a different result at tax time, you may need to widen your field of experience.
Think In Terms Of One Year And Not Decades
Millennial’s are a clever bunch. They’re very aware of their careers and their money. Most under estimate their age.
There is a pre-conceived idea that they’ll either ‘make it’ by the age of 30, or ‘don’t know enough until they’re 30’ to have their life together. They put off understanding how tax works and how they can use it to their benefit, or rush to purchase their investment property forgetting about any tax offsets and concessions that are available to them. For example, the First Home Super Saver Scheme is a great way to use the tax advantages of you superannuation fund to save for a first home – if you know how this scheme works. You need to plan to take advantage of your tax money.
Both life and finances are long-term plans.
Planning for tax is no different than studying for a university degree or starting an investment portfolio. There’s no rule about when to start, or when you’ll need to earn your first million, or even if you will, but when it comes down to it, a well-laid plan will help mitigate mistakes and save you money where you can. Life doesn’t end at 30, and you don’t have to have it all figured out by the time you hit your fourth decade. Here’s a secret – no one does. The small pebbles will turn into huge milestones with the passage of time. In a busy life, there’s never a good time to start, but the trick is to understand that knowledge can be built, skills will be sharpened and small investments and tax savings will grow over time. Start now even if it seems overwhelming and new. After a while, it won’t be and your future self will thank you. Reach for help if you can’t do it on your own.