How did the End of Financial Year creep up so fast? It seems like only yesterday that I was preparing my tax return, vowing to do things different next year. I actually enjoy doing my tax, but often feel like I could be doing more to maximise positive outcomes.
Here are some tips for getting ready for tax time.
- Keep all your bills and receipts in the one place. I have a large A4 lever folder with plastic envelope sleeves inside. For each month I have a sheet that I write down the bills due and mark off when I pay them. This is the most useful thing ever at tax time, because it allows me to take along all hard copy receipts in one place.
- Create an email folder labelled tax . You know all those charities or fundraisers that friends ask you to support? You put in your $20 or $50 or whatever feels right and then you forget about it at tax time. As soon as you receive an email back thanking you for your support, put it in the email folder. Also file anything else you think might be relevant at tax time.
- Create a tax file on your computer. Keep a folder on your computer where you file all those seemingly random things you might need for tax time. Often they come in by email (see above), but it is good to actually download and save documents somewhere where you can access them.
- Lodge your tax return early. In early July you will receive a flurry of communications – things like PAYG statements, private health insurance reports, rental income statements, bank statements etc etc. If you have a good filing system (see above) you will know where to find them. But the best way not to lose them is to lodge the return as soon as possible. The other advantage is that you get the benefit of a tax refund as soon as possible. Worried you will have to pay tax rather than get a refund? You will usually have until mid March to repay, so lodging soon gives you certainty about how much before you get a sudden bill. If you need to enter into a payment arrangement it also gives you much better credibility and ability to negotiate if you get onto it early.
- Pay for anything that is tax deductible before 30 June. If you make tax deductible payments this year rather than next, you can claim a year earlier. A good example is landlord insurance. For some reason I always receive statements for investment property landlord insurance in June that are due in July, so where possible I try to pay them early to claim in the current financial year. Of course, buying something you don’t really need (e.g. a new computer when you already have at least one perfectly good one) is false economy.
- Scan through your transactions on internet banking to identify anything that could be work related. Michael Miller from the MLC Financial Advice, Canberra suggests scanning to identify things like home office costs such as internet connection if you work from home.
- Consider if there will be any changes to your taxable income. According to Michael Miller, it is worthwhile considering whether taxable income will be higher or lower in the next financial year due to things such as unpaid or half-pay parental leave, extended study or even job changes. If you are likely to earn less next year it might make sense to bring forward deductible expenses or delay them into the new financial year so that you are claiming deductions in the year with higher income.
- Understand what tax deductions you can claim. Not including enough tax deductions will leave you out of pocket, but over claiming and committing tax fraud is potentially much worse. The Australian Taxation Office has a handy reference list of deductions you can claim.
Do you lodge your tax return early, or do you lodge it late? What is your best tip for maximizing your returns at tax time?