One of the three golden rules for claiming tax deductions is your ability to prove that you’ve already incurred a work expense. When it comes to lodging your tax returns more is, well…exactly what you need. The truth of the matter is that the more information you have to bring with your appointment with your tax accountant, the more your tax return will be maximised. Let’s face it, the less money you pay in tax, the better.
Firstly, you need to give your tax accountant your basic information. Things happen – you move house, you change jobs, you open another bank account. Make sure your details are current and up to date. Most delays in tax returns are because of old details that haven’t been updated. You’re tax accountant will update your records with the ATO to avoid any delays.
Pro Tax Tip: Tax returns normally take up to 10 working business days. Call your tax accountant if it takes longer than that and they can look into the reason for any delays or give you an expected release date from the ATO.
In order to process your tax return, your tax accountant will ask for your Tax File Number (TFN), bank details, private health insurance details (if any), the number of your dependent children. Your TFN is your unique identifier. There are only a few people who you should hand this number to. Your tax accountant is one of them. Through your TFN, your tax accountant can access payments made by your employer, bank interest, Medicare information and other government payments, saving you time and effort. The reason they can access this information, is that your employer now has to upload your payment details to the ATO using Single Touch Payroll (STP) software with each pay period.
Pro Tax Tip: You should make sure your employer is using STP to upload your details to the ATO to protect yourself and your pay data
Make sure your bank details are current and correct. It’s amazing how you might forget you opened that new account in July, when it’s June of the next year. Take five minutes and double check the information your tax accountant has already in the system. At this stage, your tax accountant will also be able to access and apply for tax offsets and concessions you may be entitled to with this information and will apply it to your lodgement details.
Some data may not be present. You’re obligated to declare all of your income streams. This might come from:
- Lump-sum payments you’ve received
- Termination payments
- Centrelink payments
- Personal injury payments
- Interest on bank or building society accounts
- Dividends received or invested
- Earnings from managed funds
- Rent or income from properties or investments
- Employment allowances
- Any income from personal services you may have earned
- Cryptocurrency transactions
Pro Tax Tip: If you have a spouse, you’ll need to let your tax accountant know their earnings and expenses to calculate your Medicare Levy or Medicare Levy Surcharge
Once your total gross income has been calculated, it’s time to work out your tax deductions. This is where your tax agent rubs their hands in glee to work out what money they can save you. To do that, you’ll need to provide documentation to prove your work-related expenses.
Receipts are your number one proof of purchase. Your receipt should show the business, date of purchase, amount, and GST payable, description of the item and the business ABN number at the very least. The types of expenses you’ll need to keep your receipts for include:
- Capital expense items
- Gifts and donations
- Travel expenses
- Car expenses
- Clothing and laundry, including uniforms you’ve been out of pocket for
- Home office expenses
- Books, journals and subscriptions
- Contributions to your superannuation fund
- Income protection insurance
- Costs for managing your tax affairs
- Any losses – capital or tax
Pro Tax Tip: Yes! If you read the list, you’ll see that the cost of managing your tax affairs is tax deductible. Not only do you get professional advice and services, but you can claim it with next year’s tax return. Bonus!
Sometimes the ATO might also ask for more information than receipts. If you claim car, travel or working from home expenses, this is where you might need to keep a log book or diary.
When keeping a log book for your car, this is where you’ll work out how many kilometres you’ve travelled for work in order to claim your costs. You’ll need copies of the purchase or lease agreement, copies of the car registration, details of the reason of your travel, odometer readings, dates and receipts for petrol, oil, insurance, repairs and maintenance and road service memberships.
Use a logbook to claim using the actual cost method or cents per kilometre method. 72 cents per kilometre can be claimed per car per driver for your 2020/21 tax return.
Pro Tax Tip: One logbook per car needs to be kept. The logbook should detail twelve consecutive weeks, which can then be averaged out for the year. One logbook can be used for five years as long as you record the odometer reading at the beginning and end of each financial year. If the car is shared, the logbook should be kept for each driver’s expenses. If your travel changes dramatically, you should start a new logbook.
If you travel for work, as well as receipts you should keep a travel diary. Your travel diary should detail the reason or your trip, dates of travel, times of meeting as well as receipts for conferences, meetings, bus, train, taxi or plane tickets. Meals and accommodation may also be claimable if you are required to work away from your home overnight. You’ll need to apportion any private costs and only claim the business portion.
If you work from home, you’ll also need to keep a work diary that detail the dates and times of your work, and hours worked per week. These details are used to substantiate any running costs of your home office. A work diary should be kept for four consecutive weeks that can be averaged out for twelve months. Use a work diary to claim using the 52 cents per hour method. If you wish to claim the 80 cents per hour method then you must keep a diary record for the entire period you wish to claim but will not be able to claim any other costs such as mobile phone, internet, electronic equipment or depreciation of equipment.
You may be out of pocket for a work uniform that you’re required to wear. Uniforms can be claimed, however, if your uniform is non-compulsory but you still need to wear it, you’ll need to show that your employer has registered with AusIndustry, a copy of your employer’s uniform policy and copies of your receipts.
You can also claim the cost of occupation-specific clothing that allows people to clearly understand your occupation when you’re working. This includes items such as protective footwear, protective clothing, fire-resistant clothing, sun protection, safety-coloured vests, non-slip shoes, steel-capped boots, gloves, overall, aprons and heavy-duty shirts and trousers.
Laundry can be claimed at a cost of $1 per load if you wash only your work clothing in that wash, or 50 cents per wash if the load is a combination of work and private clothing. Repair and maintenance to work clothing are eligible work-costs. To claim laundry washing expenses, you’ll need to keep a logbook of washes.
ITP has a handy checklist so you’ll be in the know about what to bring to your tax return appointment and ace those deductions. Your tax accountant can’t deduct expenses unless you have the proof, so they rely on your ability to keep your records in tip-top shape. If you’re still unsure, phone 1800 367 487 and chat with a friendly professional today. They’ll be very happy to tell you what documents you need and how they can reduce your tax expenses.