How to Claim Tax Deductions – Requirements for Claiming Tax Deduction

Finding the right information about how to claim tax deductions online can be daunting. Information available on ATO’s website is not simple enough to be comprehensible for everyone and take action on it. This is what we aim to do here at My tax daily. Make all the information available to everyday Aussies in easy to understand English.

No jargon or fancy words, Let’s get back to the topic under discussion today.

No wonder it is one of those scary things that gets all self-filers nightmares.  Did I overclaim my work-from-home expenses this time? Or am I allowed to claim my sonnies as a deductible expense? This guide simplifies the process of claiming tax deductions, making it accessible for everyone.

We will discuss key points including understanding what tax deductions are, identifying common deductible expenses, and emphasizing the importance of maintaining organized records.

Let’s break it down into digestible information.

Tax deductions are expenses you are allowed to subtract from your total income before calculating the income you owe your tax on.

In simple math

Taxable Income = Total Income – Tax deductions

You pay tax on your taxable income, not total income.

A good example of a tax-deductible expense would be, if you’re a data analyst and you buy a new laptop yourself for work, that cost might be deductible. Depreciated over the life of the asset. More on this later.

Tax deductions can lower your taxable income, helping you pay less tax or even get a refund. There is one general rule when it comes to tax deduction.

Your expense should directly be related to your income earning activity. ATO scrutinizes expense claims that are not directly related to your occupation.

For example, an Accountant cannot claim a pair of sunglasses he bought during the financial year. Accountants can deduce a reasoning that these glasses help him while driving to and from work. However, it is not directly related to his earning activity.

In a similar fashion, a Concreter can claim a pair of sunglasses he bought during the year. The nature of his income activity requires him to be out in the sun all the time, and having sunglasses can aid him with his income generation.

You can claim some of your expenses as deductions in your tax return

To avoid unnecessary tax audits, it is important to know what qualifies. Here are some common types of deductible expenses:

Work-Related Expenses

Home Office Costs

Charitable Donations

Good record keeping is the only way to save yourself from a tax audit. It is advisable to keep proof of all your claims with documents which provide evidence of how, when and where an expense was incurred.

A few common ways you can keep records are:

1-   Receipts: Maintain receipts for all deductible expenses.

2-   Logs and Diaries: Especially for vehicle expenses and home office costs, logs and diaries are essential to be kept.

3-   Bank Statements: Can only serve as a proof in case of missing receipts, and if they show the details of expenses incurred. For example, it must say what you buy on the bank statement, just the name of business would not qualify as deductible expense.

Before you jump onto your computer and lodge all of these expenses. It is advisable to search ATO’s Occupation and industry specific guidelines for expenses, link attached

Make sure you understand the threshold and allowable expenses for your occupation. ATO has smart systems in place to detect any false claims. All they need to do is to run your tax returns against that of other people in the same occupation as yours.

If you make any falsified claims, you will be red listed and might hear from ATO for a tax audit. If this gets too challenging for you, getting expert advice is suggested.

However, you should understand that no one understands your occupation better than yourself. Therefore, equipping yourself with the right knowledge around tax deductions for your occupation can help you claim more deductions and get more tax refund. Tax Accountants are a great help, honestly, they are not bothered if you simply reply on them for everything. Unless you are paying them a real fat fee.

Key Steps to Claim Deductions

Be honest about your claims. Try not to be greedy when claiming your expenses.

You need to understand that claiming a $100 does not mean your tax refund will increase by $100. It is subject to your tax bracket. For someone earning 65K per year, claiming a $100 can only result in $19-25 net increase in their refund.

So, is it worth over-claiming or claiming an expense without supported evidence?

Poor Record-Keeping can get you in hot waters. As long as you have evidence for the expense claimed ATO will be reasonable with you. Poor recording keeping and unorganized records can put you in trouble with ATO. Once you make an expense it is advisable to save the receipt either physically or a digital copy. And once filing your returns, make sure all receipts are attached.

We have covered a lot on the topic of tax deductions. You can find all the information related to tax deduction in our blog section. If not the ATO website offers detailed guides on deductions for various professions. Utilizing these guides can help you claim the right deductions.