With the government tax specific stimulus incentives drawing to conclusion, we are now back to the general principles of reducing tax. Jeremy Fox offers some timely tips to reduce your tax liability or increase your tax refund this year.
“Remember where an expense is used for work and privately (eg. a mobile phone) it needs to be apportioned between the two.”
Tax deductions – doesn’t have to be paid
Under current law, expenses are tax deductible when incurred. This does not necessarily mean that the amount has been paid. Unpaid phone bills, internet costs, and other outstanding, tax deductible, expenses should be included when preparing your information for tax time.
Know what you can claim – keep all your records
Keeping good records throughout the year allows for much better planning at tax time. As a general rule, expenses related to earning your income are tax deductible. For real estate agents, this might include self education expenses, real estate courses, registrations, computers used for work purposes, other work related equipment, home office expenses, subscriptions and publications, mobile phones and internet expenses just to name a few. Remember where an expense is used for work and privately (eg. a mobile phone) it needs to be apportioned between the two.
Prepay deductible expenses, such as investment interest
Individuals and small businesses (those who turnover less than $2 million) are able to claim expenses that have been prepaid for the following year, this could include investment interest, subscriptions, and other deductible expenses. Importantly, the income tax rates are marginally different between 2010 and 2011 so you may benefit from bringing forward your deductions.
Claiming motor vehicle expenses
Most real estate agents claim some form of motor vehicle expenses. Importantly, there are four ways for claiming these types of expenses in your return. It is worth having all options available to allow you work out the best method at the end of the year. You don’t have to use the same method each year. Make sure you keep all of your receipts and records (including a log book kept for 12 weeks either in the last five years, or one started during the financial year). One method, known as the cents per kilometre method, allows up to 5000km of business travel to be claimed at a set kilometre rate. Where a car is owned jointly (eg. with your spouse) each owner is able to claim the 5000km. It may be useful to clock up some business travel in any jointly owned cars before the end of the financial year, as the deduction can work out to be fairly substantial.
Contribute extra money to superannuation where possible. Contributions made before tax, known as salary sacrifice, may save a substantial amount of tax. Superannuation contributions made via salary sacrifice are taxed at 15 per cent within the superannuation fund. Once your income reaches $35,000 you are paying at least 30 per cent in income tax. Although the funds may be tied up until retirement, the compounding benefit of this saving may amount to much. Low and middle income earners ($31,920 to $61,920) are also able to access the superannuation co-contribution. Superannuation co-contribution is where the government matches superannuation contributions made from a person’s after tax salary, up to a maximum amount of $1000 (for the lower income earners).
Now is the time to sort out all your family medical expenses for the year. There is currently a 20 per cent tax offset for family medical which exceed $1500. Perhaps this year the trip to the dentist, refilling prescriptions or buying those glasses should be a little earlier to make use of the tax offset.
Tips for business owners
* Make sure that you write off any assets that are no longer in existence or have been scrapped, larger business can claim this as a tax deduction.
* Bring forward any expenses into the current financial year where possible including repairs and maintenance as well as consumables like stationery and postage.
* It may be time to update your assets. Small businesses can claim a full year of depreciation on assets bought prior to 30 June 2010 and immediate deductions for low cost assets (under $1000).
* Pay your staff superannuation by 30 June 2010 to ensure it is tax deductible this financial year.
* Accrue your staff bonuses and commissions prior to 30 June 2010 to ensure they are tax deductible.
Tips for property investors
* Make sure you have a quantity surveyor or depreciation report in place to claim the decline in value of the certain items in the rental property (eg. blinds, carpets etc).
* Consider prepaying your interest, and other rental property costs.
* Look at taking out any necessary repairs and maintenance.
Speak to your accountant
Most importantly, whatever your situation, make sure that you speak to your accountant prior to the end of the financial year. It is much easier to reduce tax and implement strategies this side of the end of the financial year.
Jeremy Fox is a Director of The Fox Group , Chartered Accountants and Business Advisers. He assists businesses across a variety of sectors and of varying sizes. Jeremy is also a member of staff of the University of Newcastle. He can be contacted by e-mail firstname.lastname@example.org