How To Avoid Common Mistakes In Your Tax Return
It’s that time of year again. The end of financial year means you’ll need to sort through your records, identify the most important information, and meet your reporting obligations to the Australian Taxation Office (ATO). A complicated tax return – think multiple sources of income, or various deductions to make – is one of the things; but, making simple mistakes can also be deceptively easy to do. So, it’s important to be aware of some of the more common aspects of tax returns that trip people up. Read on for six of the most common mistakes people make in their tax returns.
Mistake 1: Failing to declare all of your income
While you might not set out with the intention of concealing your income, you could still find yourself in hot water by accidentally declaring a smaller amount than what you truly earned. Income includes all your cash and online sales, interest, dividends, capital gains and one-off transactions (for example, if you sold some of your business equipment).
It can be easy to forget to include everything, so make sure you thoroughly reflect on anything that could be considered ‘income’ – the ATO probably views it as such.
Mistake 2: Claiming expenses you’re not entitled to
Deductions are one of the better parts of a tax return – after all, it’s only fair that you can deduct work-related expenses that you’ve incurred while earning your income – but you need to make sure that what you’re claiming can indeed be claimed, as well as have the paperwork to prove it.
Common deductions that many taxpayers can include are: using their own car for work, other travelling costs for work, the cost of tools and other equipment. Just be careful that what you’re deducting is something that was absolutely necessary for you to have carried out your work, and not just something that makes it more enjoyable or convenient: for example, capital improvements can’t be written off as a repair.
There are significant consequences for failing to do this correct- incorrect deduction claims will require you to not only repay the tax avoided, but pay an interest of about 9% per year on top of that. Also, if the ATO believes that you acted carelessly in regard to deductions, a penalty between 25% and 95% of the tax avoided could apply.
Mistake 3: Relying on the ATO’s pre-filled data
The ATO’s pre-filled data is a wonderful concept-simply push a button, and much of the income information you need on your tax return magically appears, courtesy of the ATO. The only problem? It’s not the key source data, and you’re responsible for ensuring the information is correct. There’s no getting around the need to be across your own information (for instance, your payment summaries) and ensuring that your tax return reflects it.
If you omit income and the ATO becomes aware of this, the legal burden falls on you – regardless of whether you used their pre-filled data or not.
Mistake 4: Making simple administrative errors
Proofreading isn’t just for work documents or educational assignments, your tax return could do with a once-over too. Plenty of tax returns are held up by the ATO every year because of mistakes that are easy to fix, including spelling errors and changes to personal information (like your address). And it’s not just time you could save by being careful either, it could save you money. If you forget to include your bank details on your return (or include the wrong details), you might miss out on your refund altogether!
Mistake 5: Incorrectly apportioning expenses
The importance of good record keeping becomes obvious when the end of financial year is upon us. Without it, you might incorrectly apportion your expenses – something that you need to avoid doing when filling out your tax return.
Be careful to apportion expenses that you used both privately and in your business. For example, you’ll need to adjust your rent expenses if you store personal assets at your business premises.
Mistake 6: Failing to seek help when you need it
Tax can be complicated, so there’s nothing wrong getting some help with your return. Tax agents and accounting software like Cashflow Manager could help you to get your tax return right, with the correct refund and without ATO penalties.