13 Dec Our TOP TEN Most common TAX DEDUCTIONS for INDIVIDUAL Tax Payers
The team at Rittwatchman & Associates have decided to join their experience to share with you the top ten most common tax deductions claimed by individual taxpayers within their firm. But before we begin, lets first discuss what a tax deduction is and how it can benefit individual taxpayers.
What is a tax deduction?
Technically, a tax deduction is a cost that a taxpayer incurs which is directly related to earning their income. Income tax is paid on your taxable income, but you can reduce the amount of tax by claiming deductions. When completing your tax return, you can claim deductions for certain expenses – costs which are directly related to earning your assessable income. The sum of these deductions is subtracted from your income for the period thereby reducing the tax payable on the income you have earned during the year.
Facts regarding tax deduction
Essentially, a work-related tax deduction is any costs that you incurred that is directly related to earning your income. If your employer reimburses you for any costs, then no deduction is available. You will need to keep good records to prove you incurred the expenses personally and those records need to be retained for 5 years from the date your return is lodged with the ATO. This evidence can be in the form of the original receipt but the ATO has started to accept electronic copies as evidence. If an expense is for both work and private purposes, you can only claim the work-related portion as a tax deduction. Good record keeping will apply here, too.
Caution: The ATO can enquire with your employer if they believe you may have claimed a deduction for an expense that you have already been reimbursed for!
Is there a limit to how much I can claim?
Currently, there’s no limit to the amount of deductions you can claim; however, the Australian Government is already having discussions on placing deduction limits on individual tax returns to reduce and prevent overclaiming in the future.
RWA most common TOP ten tax deductions for individuals are:
- Motor vehicle – Work Related Car Deduction
Obviously travelling directly from home to work, you are not entitled to a tax deduction. But did you know that if you travel between work places, to work conferences; meetings with clients or you are required to travel to different work locations then you could claim a tax deduction for using your own car.
There are two methods used to claiming car related deductions.
- The cents per kilometre is restricted to a maximum of 5,000 kilometres travelled during the year for work related purposes at a flat rate of 0.66 cents (2018-19 rate will increase to 0.68c) which gives you a deduction of $3,300 in your return.
- The second method known as the log book method is a little more complexed but is used by taxpayers who travel more than 5,000km. The benefit of this method is that you can claim all costs related to the running of the motor vehicle including fuel, repairs, rego, insurance etc in your return based on the % of work-related travel which is determined by your log-book.
- Travel expenses
If you’re FIFO (fly-in-fly-out worker), or if you’re required to travel ad-hoc for your work, then you can claim any meals, incidental expenses and accommodation costs. Good record keeping, and a written record of costs incurred is recommended. Unfortunately, there are significant restrictions on deductions that can be claimed by FIFO workers in respect of travel costs.
- Uniform and Laundry costs
Are you required to wear a uniform for work with a logo on it? Or do you need to wear safety boots or protective clothing while you work? Great news, you can claim for the cost of purchasing and cleaning your uniform, including dry cleaning costs. Don’t be fooled, this deduction doesn’t include business suits or jackets if there is no corporate logo.
- Mobile Phone
Everyone uses their mobile phones during the day, but
- Do you have to have your phone specifically for work purposes?
- Does your boss need to be able to contact you?
- Do you need to be accessible to clients (during and outside of work hours)?
If the answer is yes, then you should review one monthly bill, highlight the work-related calls and claim that portion in your return. The ATO knows that not all costs related to the mobile phone is 100% business so be realistic when claiming the deduction and make sure your claim can be backed up by your actual business phone usage.
- Home Office Costs
Juggling work and family life is difficult, which is why working from home is becoming a more common place work arrangement. If you work from home, you are entitled to claim the costs for it. This can be an ATO pre-determined rate or claiming a % based on the rooms in the house. An example of the costs that you can include are internet costs, home phone, light & power, gas as well as office equipment you purchase to use at home. Please note these deduction are in respect of a home office where the office could be considered an office of convenience (that is you normally work in your employer premises and use your home office for convenience).
If you are operating a business from your home or your place of work is your home the deductions available to you increase substantially.
- Accounting Fees
Yes, coming to see us will give you a tax deduction. The costs you incur to have your return prepared and lodged by your accountant is deductible as well as the cost of travel to see us. Keep in mind that these costs are generally claimable only in the year that they are paid.
Donations to charities are tax deductible, as most folks would know. But be aware that if you receive something for your money, it’s considered a purchase… and that’s nottax deductible.
- Study costs
If you undertake an educational course that will leads to a formal qualification (and it directly relates to your work activities or improves your prospects of employment promotion), you may be able to claim your course fees, any travel costs incurred and the costs of undertaking the study such as materials.
- Sunscreen & Sun Glasses
If your job requires you to regularly work outside and your employer doesn’t already supply you with a suitable product, you may be able to claim sunscreen purchase costs or makeup which is SPF 20 or higher.
The purchase of sunglasses is also outright deductible if your work requires to you regularly work outdoors. This includes prescription sunglasses up to a maximum of $300. The cost of the sun glasses exceeds $300, the cost of the sunglasses are required to be depreciated
Are you supplying gifts to your clients, suppliers or contractors without reimbursement from your workplace? In this case, you can make a claim on those expenses. Such gifts might include movie tickets, sporting events, plays & restaurant meals.
A final reminder about claiming deductions:
Remember that good record keeping is key – if you’re audited, you don’t want to be caught without evidence of your claims! You’ll need to keep receipts, journals and other evidence of your purchases on file for five years. The ATO website includes recommendations on how to keep records in all the areas we’ve suggested above… And naturally you can contact our friendly team if you’re unsure.
Have you got questions about deductions? The team at RittWatchman would love to help! Call us today on (08) 8271 7100.