While it’s tempting to put off the paperwork until the last minute, spending a little extra time upfront can make a big difference at tax time. You’ll be surprised how easy it is to prepare for your tax return – and how much you could save.
While most of us don’t look forward to tax time, taking action earlier will help you get prepared, potentially saving you from having to pay more tax than you need to. Here are five simple steps you can take right now.
1. Get your paper work in order
One of the more fiddly tasks at tax time is the paper work, so get started now. If you haven’t already, set up a filing system for your tax-related paperwork. Collect all your bank, investment and superannuation statements, plus any receipts or invoices that record your potential deductions.
2. Understand the health insurance changes and get your cover sorted
The Federal Government currently offers a health insurance rebate to help make private health cover more affordable for Australians. The rebate is a means-tested tiered system, where the level of rebate you receive for your health insurance premiums is dependent on your pre-tax income. To find more information on the rebate thresholds and rates read our helpful guide Health Insurance Rebate.
You can take your rebate either upfront, by paying a reduced premium to your health insurer, or claim it in full when you lodge your tax return.
You should also be aware that if you're in one of the higher income categories you may need to pay the Medicare Levy Surcharge if you don’t have eligible cover in place. If you’re aware of what your likely income will be over the coming financial year and if you are at risk of paying the Surcharge, consider acting now to ensure you will be covered for the whole year.
Also, if you do not have hospital cover by 1 July following your 31st birthday, and then decide to take out hospital cover later in life, you will pay a 2% loading on top of your premium for every year you are aged over 30.
In other words, if you take private hospital insurance out when you are 50, it will cost you 40% more than a 30 year old who takes out health insurance for the first time. So if you’re over 30 but don’t have health insurance yet, it could be worth applying now.
3. Find out what you can claim for
It’s worth going to the trouble of researching what you can claim as a tax deduction – you could end up saving more on tax.
Expenses you may be able to claim include electronic devices you use for work purposes, a home office, or your car if you use it for work.However all of these will depend on the nature of the expense and how close it relates to your work.
You can also claim non-work expenses, such as charitable contributions or investment property costs. Check the ATO website to find out what you can (and can’t) claim. And don’t forget to check if there are some specific expenses you can claim that relate directly to your industry.
4. Contribute extra to super
By adding to your super, you could help reduce your overall tax – boosting your retirement savings at the same time. And there’s more than one way to do it.
One great option is to make contributions from your pre-tax income, just like your employer’s super guarantee payments. In 2013–14, most taxpayers can contribute up to $25,000 in concessional contributions from pre-tax income, including your employer’s contributions(some alternate rules apply for older employees). You will still need to pay the 15% superannuation contributions tax on these amounts so whether this results in an overall beneficial tax position will depend on your personal circumstances. So, if you’re due for an end of year bonus, ask your employer about salary sacrificing it into super. But be careful not to exceed this annual limit as there are significant penalties for doing so. However note that these contributions will still be taken into account when determining your liability for the Medicare Levy and the Medicare Levy Surcharge.
If you’re self-employed or earn under 10% of your total income from an employer, you may be able to reduce your tax by making your own super contributions of up to $25,000. There may be other strategies for superannuation that may suit your situation and to consider these you should consult a financial adviser.
5. Have money ready – just in case you owe some
Avoid any nasty surprises. Estimate the tax you owe by working out your total taxable income, minus any deductions and tax offsets, then applying the tax rates for the financial year. If you do need to pay tax, start putting aside money for it now to avoid getting lumped with a hefty tax bill you can’t pay.
Any statements about tax are general and you should consult a registered tax agent if you require specific tax advice.
These articles are provided as reference material to allow more informed decision making, but are not intended as being a complete source of information on any topic. All readers should make their own independent analysis on the topic to make sure they have considered the aspects that are important to them.