A Guide To Last Minute Tax Savings Tips
The end of the financial year is almost here, which means it’s tax time once again. Check out these eleventh hour ideas to reduce your taxable income and maximise your deductions to make sure you get the most out of your tax return.
Getting your tax deductions clear — what you can and can’t claim on — is one of the most important things to get your head around before you file your tax return. While you can work with an accountant, it’s always worth educating yourself. After all, the more you know, the better position you’re in to maximise deductions.
But there are also a number of other ways you can save — if you take the time. 9Saver has spoken to experts across different financial fields to get some top tips on ways you can get the most out of your tax return.
1. Prepay your expenses
Consider pre-paying now for certain things, such as magazine subscriptions, as you can claim a tax deduction this year for expenses which wholly or partly relate to next year.
Joanna Pretty of mortgage lender State Custodians Home Loans explained that if you have an investment property — prepaying up to 13 months interest on the investment loan can cut your costs.
“You’ll reduce your taxable income this year by bringing forward a deduction on the interest paid,” Pretty said. “If you had a year of high earnings, that could be a useful tool to lower the taxable amount.”
Clear up your super
Gary Winwood-Smith, senior financial planner with Sydney Financial Planning, told 9Saver that there are smart ways to maximise your return through super.
“If your spouse is not working, make a $3,000 contribution on their behalf and get a tax rebate of $540 which is equal to an 18 per cent return on your money,” Winwood-Smith said.
“However, don’t leave making a contribution to the last second. It’s the date the funds are shown as a deposit in the super account which is important – not the date you make the contribution. A funds transfer on the 30th of June isn’t going to show as a deposit until July and will therefore be counted as a contribution in the next tax year,” Winwood-Smith explained.
And don’t forget, if you earn less than $35,454, for a maximum co-contribution of $500 the government will give you 50c for every dollar.
Pay off as much debt as possible
If you have money owing on a credit card, save hard and pay off as much as you can in preparation for the new financial year in case you get slugged on your return and end up owing money.
“You have until October 31 to lodge your tax return, so if your finances are in disarray, you still have time to get back on track before then and avoid further debt,” Deborah Southon from budgeting and debt specialists Fox Symes said.
Southon told 9Saver that learning to live with just one card with a low interest rate, or none at all is wise.
“You need to pay down your one card regularly – but not just the minimum balance or you’ll never get anywhere. If you need to have more than one credit card ask yourself why. Obviously you’re not saving enough to cover your expenses. If you’ve got multiple cards, cut up the ones with the highest interest rates first, then pay them off ASAP.”
Reduce your capital gains tax
Any capital gains you’ve made during the year will be subject to tax.
However Winwood-Smith said that there are clever ways to reduce capital gains tax by buying the asset in the right tax and account structure to start with.
“For example, super funds pay 10% capital gains tax and personal pensions don’t pay any capital gains tax,” Winwood-Smith said.
“When buying shares or property care should be taken to make sure your super fund will allow you to transfer these assets into your own personal pension at retirement without having to sell them. Once your personal pension owns the asset you can sell this and capital gains tax will not apply.”
However, before you make the decision to buy property or shares its critical you talk to someone who can help you navigate this complex tax minefield.
Buy something for your business
Own your own small business? The good news is that small business operators can buy something for their business as long as it’s under $20,000 and immediately write it off against their business tax bill.
This is a good way to invest in new assets such as computers, electronic equipment, office furniture etc. But keep in mind that this concession, which was due to be abolished, has been extended to 30 June 2019. If you don’t get around to it this year, consider taking advantage of the tax break next financial year before it goes.
“Your business can write off the purchase as a tax deduction to reduce the amount of tax you have to pay,” Deborah Southon of budgeting and debt specialists Fox Symes said.
“Remember your business still needs to fund the purchase until you can claim for it. So make sure your cashflow supports the purchase and that it is essential. If you have to go into debt to fund it, then even with a tax bill reduction you need to think carefully about it. Also if your business makes a tax loss for the year, then a tax reduction may not make much difference or provide any benefit.”
It may sound odd, but if you delay income owing to you it can result in more money in your pocket. So if you’re owed a salary bonus, capital gains from property, investments or shares, then delaying the income until the new financial year means you won’t be taxed on it.
“So if you work for yourself and are owed multiple invoices, hold off chasing until July,” Southon said. “Of course if you have creditors chasing you to pay bills and debts, this may not be possible! To put yourself in the best position so you’re not caught out, you should always ensure that all your debts and credit cards are paid off. Then you’ll be in a good position to delay your pay a little around this time to avoid a larger amount of tax.”
As these handy tips are of a general nature only, if you’re really looking to maximise your claimable deductions, always speak to a professional beforehand.
PLUS: THE MAIN TAX DEDUCTIONS TO CONSIDER FOR YOUR TAX RETURN
- Clothing expenses – Unfortunately you can’t claim for everyday office clothes, but you can claim for the cost and laundering of official uniforms.
- Car and travel expenses – You can’t normally claim for costs travelling to work from your home, but you can if you use your car within work ours to get to and from meetings.
- Investment property deductions – You can claim for repairs, so now’s a good time to squeeze in a few more before July 1.
- Gifts and donations – Charitable donations are claimable.
- Interest, dividend and other investment income deductions – Include account fees, investing magazines and subscriptions, internet access, and depreciation on your computer.
- Home office expenses – This could could include your computer, phone and internet service costs however you can only claim the proportion of expenses that relate to work.
- Self-education expenses – If the study relates to your current job, you can claim expenses like course fees, student union fees, textbooks, stationery, internet etc.
- Tools, equipment and other equipment – You can claim a deduction for tools and add-ons such as sunscreen and hats if you work outside, office or safety equipment.
- Other deductions – Other miscellaneous items you can claim include union fees, the cost of managing your tax affairs, overtime meals and personal super contributions.