Another financial year is upon us, and it's a smart time investment to go ahead and start considering how you're going to prepare your taxes. We have a few tips for you that, if completed by June 30, will help you with your 2021 taxes.
Here are a few helpful ways to prepare: Getting your paperwork organised in advance, prepaying some expenses for the new year, and budgeting your expenses for the next year.
Organising paperwork
When you arrive at tax time, having organised paperwork alleviates a lot of the stress you could feel. Having everything you will need will also help ensure you make the most of your possibly deductions. Sydney financial planners suggest having:
• All records and receipts.
• Your tax return from last year.
• Records of income or purchases of shares, property, or business.
• Document proving health insurance.
• If married, your spouse's details.
• If you have children, their details (including date of birth).
• Records of the following incomes: payments, rental property income, interests, dividends, and foreign income (if any).
• Records of the following expenses: any business expenses, charitable contributions, self-education fees, and accountant expenses (if any).
• Documentation for the home office expense if you've worked from home any this financial year.
• The ATO has introduced a shortcut method due to COVID-19 that can be used when claiming deductions for the financial year 2020-2021. This method enables you to claim 80 cents per hour you worked from home, but you must have a record (timesheet, roster, diary, etc.) of the number of the hours that you worked from home.
Tax deductions to review if you worked from home include:
• Costs for cleaning (what you pay for cleaning office space in your home).
• Furniture for your office (new purchases and repairs of furniture required for your job).
• Phone bill (Track work-related calls on both landline and mobile phones with an itemized bill from your phone service company).
• Home internet bill (A portion of your internet bill used for work purposes can be claimed).
• Electricity bill (A portion of your electricity bill according to how much is used to do your job).
• Expenses for occupancy, like rent, mortgage, and insurance (Only if you have a dedicated office space and are operating your business entirely from home).
Please note: A trained tax professional can help you ensure you have tracked and documented these expenses correctly, in order to avoid any penalties.
Understanding deductions you can take
Figuring out which job-related expenses that you accumulate that may or may not be claimed can be confusing. You want to avoid incorrectly claiming expenses in order to avoid a penalty from the ATO. There are some obvious expenses, like a carpenter's tools or travel expenses. There are also many expenses that are less obvious; for example, journalists may be able to claim pay TV costs. As long as they are accumulated while performing their work, they may be claimed. Thousands of different business expenses are available to be claimed. Here are some examples to be aware of:
• Specific tools and clothing you must have in order to perform your job's duties, like tools a carpenter uses, bakeware a cook uses, etc.
• Items needed for your safety or protection when performing your work, like ear protection if you work in a very loud setting.
• Cell phones and laptop computers used for your job.
• Training and certificates for self-education that will enhance your job performance and ability to promote up in your profession.
We recommend learning more about claiming deductions so that you understand what is and is not a deduction that you can claim. The myDeductions app from the ATO can help you track your income and deductions to make tax time easier. Always check that your records and detailed.
You want to ensure that you understand all of the records you need to keep and that those records are thorough. It's best to keep your records in English and in a safe place for five years. The ATO has a page on record keeping where you can learn more.
There's also a tool on the record keeping evaluation page that can evaluate your record keeping. This will allow you to review how well you have kept your records so far, so that you can be even better prepared in the future.
Prepaying expenses for the next financial year
If for some reason you think your income may drop in the next financial year, you can boost your current tax refund by prepaying expenses for next year by June 30. By prepaying these expenses, they will be included in this year's taxes.
A prepayment is when you make a payment during a reporting period for items or services you will not receive until a future period or that will be continuously received over a longer reporting period. This usually happens with expenses like insurance premiums or subscriptions that are spread over time.
Some possible prepayments could be:
• Rent
• Airfares and accommodation
• Subscription
• Contract payments
• Insurance
• Advertising
• Booking for conferences, major events, etc.
Set up a budget
Creating a budget for the next financial year will help you maintain control over your spending and make sure you are able to meet your financial goals. A budget allows you to plan your future finances, like how much you will spend and how much you will save. It helps you stay on track to meet your financial goals.
Tax Time Help For You
This has been an exceptionally difficult year for most of us, and as a result, your taxes could be more complicated than what you are used to. Perhaps your income was drastically affected or you have deductions you are not accustomed to dealing with. Get organised now so that you are prepared, and contact us for your financial planning Melbourne needs.
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