Tax season is well underway, with this year bringing record numbers of early tax return submissions as a result of Coronavirus. But getting in quick can pose problems, particularly if you’re in a rush and you’re doing your tax by yourself.
Millions of people look forward to a healthy tax return each year, yet this process can be delayed if you’ve made mistakes or errors. And if you do get your tax return wrong, not only will it take longer, but you could be hit with a lower refund or even ATO penalties.
While you’re not likely to be audited or fined for making a simple mistake, it can hold up your refund until things get straightened out. So while it may not seem fun at the time, you’ll be much better off taking some extra time to ensure your information is accurate.
If you’re about to complete your tax return, here are five common mistakes to avoid:
1. Not declaring all income
Income from your primary employer may be auto-filled into your tax return documentation, but it won’t capture all income you may have earned. It’s all too easy to forget or leave out other forms of income you may have received over the course of the financial year, so make sure you review and manually update the information in these sections so your true income is reflected.
Whether you have a side hustle, partake in the gig economy, have investments or rental properties, gained from cryptocurrency or something else, you need to make sure you have clearly detailed this in your return. If you don’t? The ATO is well versed in identifying missed income declarations, and it’s likely you’ll hear from them or have your return delayed until everything is declared.
2. Claiming self-education courses unrelated to your job
While it may be tempting to claim that positive-thinking self-help course you attended one weekend with a friend, unless you can demonstrate the education was connected to your current employment, you won’t be able to claim it at tax time. Likewise with any education you undertake that is designed to help you get into a new career. The only self-education courses you can claim are those that are directly linked to or will benefit you in your current job.
3. Inadequate documentation to support your home office claim
This year, the ATO introduced a temporary shortcut method for calculating home office expenses that many people will benefit from. The shortcut offers 80 cents per hour worked from home during COVID, a calculation which is simple, but also requires minimal record keeping outside your work log or timesheet.
During a standard year however, documentation is key to claiming your home office expenses. Always ensure you can substantiate your claims by keeping records of your working hours and expenditure receipts.
4. Not keeping records of receipts
If you can’t back up your claims with receipts or invoices, you’re not very likely to see all of that money again.
Almost 50% of adjustments the ATO makes are due to a lack of (or poor quality) records. To avoid this happening to you, consider using one of the many tools available to help manage your receipts and expenditure. For example, the ITP Tax App offers a Receipts tool which helps you keep track of your work-related expenses and upload them to your tax return or tax agent at tax time.
5. Claiming deductions for personal expenses
Avoid exaggerating your deductions or adding in claims for personal expenses. Even if you work from home, you should only claim the portion of your expenses that relate to your work or business.
By inflating your deductions without having the proper proof to back it up, you could be headed towards an audit and even a fine. So make sure your expenses are properly analysed, are reasonable and you have the paperwork to support them when putting in your claim.
So what’s the best way to avoid these mistakes? Hire one of ITP’s tax professionals to help lodge your return! Almost two-thirds of Australians hire a tax consultant to assist them with their tax, and for good reason. Not only is it less stressful, you’ll have peace of mind knowing there’ll be no mistakes. Not to mention our expertise and knowledge of tax law means we can potentially snare you some extra deductions and a bigger return.
If you’d like help preparing your tax return, contact our friendly ITP team today.