Tax Troubles – 5 Costly Tax Mistakes to Avoid

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This year, the Australian Taxation Office will be issuing a more comprehensive range of refunds. Thousands of Australians have had their working hours reduced or have been made redundant, so their entitlement to a hefty tax refund is driving them to fill in their tax return as quickly as possible.

Of course, refunds are also decided based on the number of tax deductions you’re claiming. However, if you claim incorrectly without the proper evidence, you could find you’ve made some seriously costly tax mistakes.

While the best method is to find a tax agent near you, many people prefer to handle their taxes themselves. With this in mind, we’ve made a list of five common yet costly tax mistakes, complete with what you need to do to avoid them. 

1.     Every Income Stream Counts

The Australian Bureau of Statistics revealed that one in four Australians under the age of 30 is working multiple jobs. Your tax return needs to include every stream of income clearly, even if it’s an inconsistently paid online ‘gig’ or returns from an investing platform. If you gain money from a company, you need to declare it.

2.     Working From Home? Know The Update And Don’t Double Up

After COVID swept the globe, a monumental 4.3 million Australians began working from home. As a result, the Australian Taxation Office made it simpler to claim for working from home. This shortcut is a temporary method due to the surge in #WFH employees. It’s straightforward to calculate at 80 cents per hour and demands very little bookkeeping.

The shortcut is an umbrella claim, meaning it covers a range of expenses. Unfortunately, this is where you can make some expensive mistakes. The main takeaway here is to avoid using the temporary shortcut method while also claiming expenses separately.

Know and understand what the short-cut method includes before you use it, and remember that while the bookkeeping is minimal, you’ll still need some evidence to back up your claim. Track your hours with a timesheet, and ask your employer to verify this.

3.     Don’t Male Claims Without Evidence

While this is evident, many people ignore it as they feel they can claim many expenses without clear documentation. This is the most common reason the ATO disallows a claim. Fictitious claims or anything that signifies fraud will be met with heavy penalties, meaning you’ll have to cash out rather than cash in. Make sure you have documentation to prove your claim for everything (when in doubt, keep the receipt).

4.     Don’t Claim Expenses You’re Not Entitled To

The main rules to follow from the ATO are simple:

1. Expenses must be linked to your income
2. You must have made the purchases yourself without being reimbursed
3. You have to have evidence to prove it

Ensure you’re not confusing work and personal costs. They are not interchangeable, and this can be a costly mistake. In addition, you must be aware of what you can claim when filing your tax return.

5.     You Cannot Claim Personal Expenses For Rental Properties

If you’re claiming a rental property as an expense, it needs to be leased or available to rent. If it’s just sitting there, and you’re not actively advertising it, you’re not eligible to claim for it. As always, keep evidence to prove your property was let out or that you were actively trying to find a tenant.

Tax time can be a daunting and stressful period, with many Australian citizens still confused about what they can and cannot claim. However, by understanding the most common and costly tax mistakes, you should be able to avoid them, allowing you to maximize your tax return.