Maximise Savings: Deductible Expenses for Tax Purposes

Maximise Savings: Deductible Expenses for Tax Purposes

A little planning can go a long way during the tax season. As the tax return filing deadline approaches, it's time to start considering the expenses you incurred throughout the previous fiscal year that were related to your work or generated income for you.

Why, you might ask? These expenses could decrease the amount of income that is ultimately subject to taxes by allowing you to deduct a percentage of certain expenses from your taxable income. In other words, understanding what qualifies for taxation can ultimately save you money.

Here are some questions to ask yourself when determining whether expenses could be written off on your taxes:

• Is there a direct link between the expense and your job performance or another income-generating activity? This may be proof that the cost is necessary and therefore, could be tax-deductible.
• Have you paid for these expenses without reimbursement from your employer? In some instances, these out-of-pocket costs can also be deducted.
• Do you have formal documentation such as a receipt or a bank statement showing that you carried out the transaction? If so, this is crucial evidence for claiming an expense.

Remember, every bit of savings can add up significantly when done correctly. Get clear on what needs taxation so you can get the most out of your tax return this year.

If the expense was for both work and personal use, you must determine what portion of the spending is relevant to your business or income-generating activity (for example, using the internet at home for both work and personal usage).

How do tax deductions work?

As a taxpayer, you have the legal right to claim tax deductions for work-related expenses when filing your tax return. These deductions can help reduce your taxable income. To be eligible for a deduction related to your employment, you must meet the following criteria:

• Keep Records: It's important to maintain records to support your claims.
• Expense Relevance: The expenses must be directly related to your employment.
• Personal Expenditure: You must have personally incurred the expenses and not have been reimbursed.
• Reimbursement: If you were not able to get reimbursed for the expense, you may be eligible for a deduction.

Even if an expense was used for both personal and professional purposes, you can only deduct the portion directly linked to your employment from your taxable income. Remember to consult with a tax professional or refer to the official guidelines for specific details when preparing your tax return.

What are the different types of deductions you can claim?

Vehicle and travel expenses

When it comes to managing the expenses of business travel and using your vehicle, the first and most crucial thing to keep in mind is the importance of maintaining records. This will greatly assist you when it's time to file your taxes. By diligently keeping records, you can ensure a smooth tax return process and take advantage of potential deductions for work related vehicle and travel costs.

If you utilise your car for work purposes, you have the legal entitlement to seek reimbursement for travel expenses directly associated with your employment and the business-related costs incurred from using your vehicle. There are various options available for submitting your deduction for car expenses, each with its own distinct record-keeping requirements. It is important to note that in order to make a deduction using any of these methods, you must be the owner of the vehicle and keep accurate records of your expenses using the myDeductions tool in the ATO app or share them with a tax agent at tax time.

However, it is important to remember that the daily commute to and from work is considered private travel and cannot be deducted as a tax expense.

Even if any of the situations mentioned above apply, you cannot deduct the cost of regular commutes between your home and workplace because such travel is considered personal:

• If you run errands on your way to work, like picking up the mail, or if you drive back to the office after work for security check-ins or parent-teacher conferences.
• If you work longer hours without access to public transportation to get home.

Link to ATO: Cars, transport and travel

What clothing can be claimed?

Only attire specifically designed for your profession, such as chef's pants, HiVis clothing for construction workers, safety shoes etc, can be deducted on your taxes. You cannot deduct the cost of purchasing or laundering clothes that are not necessary for your job, including dark-colored pants and collarless white shirts.

However, you can still claim a deduction for clothing and accessories used to protect yourself from illness or injury. For example, if you work outdoors, you may be eligible for reimbursement for sun protection.

If an item features your company's logo or complies with your employer's uniform policy, you may qualify for a deduction for uniform-specific clothing.

Do you need to wear business attire or a company uniform with the employer's logo? For instance, if you work at a clothing store, you may be required to wear clothes purchased from there to the office.

Link to ATO: Deductions when you buy, repair or launder occupation-specific or protective clothing, or distinctive uniforms.

Remember, you must follow your employer's dress code regardless of the circumstances.

Working from home deductions

Working from home can be a convenient option for managing your projects. If you have a designated room as your workplace, you may be eligible for a tax deduction on some home office expenses during tax time. It's important to note that the deduction applies only to the time you have exclusive use of the space, especially if you're using it for multiple purposes or have been reimbursed by your employer for using a shared space. Remember, even if you don't require a separate room for your home office, these rules still apply.

Maintaining thorough records for your home office is essential. Working from the comfort of your own home allows you to fulfil your work obligations conveniently. You may even be eligible for expense reimbursements related to your employment, such as those for a computer, phone, or other necessary equipment. Remember, you can deduct your expenses if you use specific electronic devices and meet the eligibility criteria for working from home deductions as an office worker. Take into consideration the expenses associated with using any electrical appliances.

In general, you have the ability to deduct expenses up to $300 for home office equipment, such as computers. However, for items that cost more than $300, you can claim the depreciation of their value. For example, if you utilise your phone for work purposes, you might be eligible to deduct some or all of your monthly phone expenses with written evidence.

Link to ATO: Working from home expenses

Mobile phone use

If you use your personal phone for work-related purposes and pay for it yourself, you may be eligible to deduct the cost. To support your claims, ensure you have receipts. However, if you use your phone for both work and personal purposes, you'll need to determine the proportion of time spent on work-related activities.

It's important to note that if your company has already covered your phone expenses, you cannot seek reimbursement.

To calculate your deduction, select a typical four-week period within the tax year. If your phone plan provides an itemised bill, you can use it to determine the amount of time you spent on work-related calls during that period. This data can then be used for the following year.

Link to ATO: Mobile phone, mobile internet and other devices

Professional associations, magazine subscriptions and trade union fees

Great news! If you're required to be a member of an association for your job, you can get reimbursed for your membership dues. And if you're part of a labor union, your dues are tax deductible.

However, be cautious when it comes to buying periodicals or subscribing to media related to your industry, as it may affect your return. But don't worry, if you're an investor, you can claim deductions for financial publications and research services.

To make sure you qualify for these deductions, plan ahead and pay for expenses before June 30th for the following year. This way, you can maximise your benefits and stay on top of your financial game.

Link to ATO: Memberships, accreditations, fees and commissions

Gifts and Donations

If the organisation you donated to qualifies as a deductible gift recipient (DGR), you can deduct your gifts or donations from your taxes. To be eligible for a tax deduction for a gift, the recipient must meet four conditions:

• The donation must be received by a DGR.
• The item given as a gift must truly be a gift.
• Money or property can be used as a substitute, with financial assets falling under the latter category.
• The gift must adhere to all applicable requirements. Since different DGRs may have different standards, it is advisable to verify.

Different maximum amounts can be claimed for each type of gift. For money, the minimum amount must be at least two dollars. However, rules may vary for real estate depending on the nature and cost of the asset.

Link to ATO: Gifts and donations

How much to claim

You can deduct financial contributions from your taxes as long as the total cost of the gift exceeds $2. However, keep in mind that the rules for gifts of property vary depending on the type and value of the gift.

To claim the deduction on your tax return, you must meet the qualifications for the income year in which the gift was given. Your receipt should clearly indicate whether you are eligible to claim a deduction, as this will serve as proof of your deduction.

If you make a contribution exceeding $2 over the phone or through the internet, you will need an online receipt or a credit card statement as proof of the deduction. If you made your contribution through a third party like a bank or retail store, the receipt you received from them will suffice. If you made a donation through a program called "workplace-giving," your payment summary will reflect the amount you provided to the organisation. For more information on correctly claiming gifts and donations, please refer to the following resource.

Interest and investments

Tax deductions can be claimed for expenses incurred while earning investment income, such as interest and dividends. Additionally, account holding charges for investment purposes can be included in the costs associated with interest income, as well as any expenses related to managing your tax affairs. However, please note that if you have a joint account, you can only recover the fees related to your portion of the account.

Furthermore, the interest paid on money borrowed to purchase stocks, which can be utilised for both share acquisition and dividend investments, is eligible for tax deduction. Nevertheless, if you borrowed money and used it for both personal and professional purposes, it is important to allocate the funds equally between the two categories.

Link to ATO: Investments, insurance and super

Income protection insurance

You can deduct insurance premiums that protect you against a decrease in income as a business expense. However, it's important to note that life insurance, critical care insurance, or trauma insurance are not deductible. Additionally, using contributions from your superannuation account to pay for insurance coverage is illegal.

Link to ATO: Income protection insurance

Self-education expenses

If your studies directly relate to your line of work, you may be eligible for financial assistance. However, in order to qualify, the training you receive must lead to a valid qualification and meet the following criteria:

• The training should result in an immediate increase in income or enhance the possibility of future income growth.
• The training should help you maintain or expand the skills and knowledge necessary for your current employment.

Please note that expenses for self-education that are not closely connected to your existing job cannot be claimed as business expenses.
You may be eligible for compensation for the following costs associated with your additional education:

• Meals and accommodation (if staying overnight away from home)
• Course or tuition fees for computer consumables that have depreciated in value (costing more than $300)
• Equipment purchases or repairs (costing less than $300)
• Transportation expenses, office supplies, and general running costs
• Internet usage (excluding connection fees)
• Parking fees (for work-related claims only)
• Phone calls, postage, stationery, student union fees, and costs related to services and amenities provided to students, as well as travel to and from the educational location (for work-related claims only)

If an expense is relevant to both your self-education and another purpose, only the portion directly related to your self-education can be deducted. Other components of the cost are not eligible for deduction.

Link to ATO: Self-education expenses

Tools and equipment

You may be eligible to deduct some or all of the expenses incurred in purchasing specific tools and equipment necessary for work-related purposes. If these items are used for both personal and professional use, it's important to determine the proportion that qualifies for each category. The deduction you can claim will depend on the cost of the asset and its use for private purposes.

• Immediate deduction is available for individual items that cost less than $300 and are not part of a set.
• If you own items individually or as part of a set that cost more than $300, you may be eligible to claim a deduction for their depreciation. Additionally, expenses related to the repair and insurance of tools and equipment can also be claimed if deemed necessary.

Link to ATO: Tools and equipment to perform your work

Conclusion

Always remember to ask yourself: "Is this expense regular and necessary for my line of work?" whenever you're unsure if it qualifies as a legitimate work related expense. The ATO will specifically inquire about this during their evaluation of your deductions in case of an audit. If the answer is no, cease the deduction immediately.

We understand that navigating the intricacies of work-related expenses is no small task, especially when you're invested in growing a business that demands your full attention. That's why we're here—to simplify the process and give you peace of mind. Rest assured, our expertise makes us well-equipped to ensure that you claim every deduction you're entitled to, maximising your potential savings. Take the first step towards optimising your financial health and reach out to us. Let's start a conversation about your needs and how we can tailor our support to fit your unique scenario. Together, we can pave the way for your business to thrive, fortified by a foundation of sound financial practices.