5 Things you can do now to prepare for your tax return
Updated: 3 days ago
Do the words "tax return" make your palms sweat? I used to wake up in a cold sweat thinking about my 3 years of incomplete tax returns, imagining the ATO sending agents after me. Then I finally put my big girl boots on and sorted out the mess. Once it was done, it was a huge relief, and now I look forward to tax time each year in the hope that I will get a little something back from the government for my troubles.
The key to maximising your tax return is to put in the effort. If it stresses you out, there here are a few things you can start doing now to reduce the strain when the end of June rolls around.
1. Start a spreadsheet
It's no secret - I love spreadsheets! If you want to start getting ready for tax time, start a spreadsheet for your expenses. You can break them down into categories and start entering any receipts you have. This will take a big load off once you take your tax in to your accountant. You may even decide to take the plunge and do it yourself!
By breaking your expenses into categories, it makes it easier to track and harder to accidentally miss something. In my experience, more categories are better. A well set up spreadsheet will help! I break my expenses into a bunch of categories, including (bot not limited to)
Categories for expenses
printing and stationery
postage and courier
repairs and maintenance
new equipment (for music instruments)
training and education
telephone and internet
The list goes on! The more specific you are with your categories, the easier it is to work out if you can claim something or not. For instance, I separate tolls, parking and fares. I could have them all in one category, but having them separate is handy, because I can get an idea how much I spent on each, and how much I can claim.
2. Look up any changes to claimable expenses for the year
Each year the ATO makes little tweaks to what you can and can't claim. For instance, with so many people working from home last year, they simplified the rules for claiming home office expenses. Rather than adding up expenses, they simply let you claim 80c per work hour conducted at home. It pays to look these things up before you do your return.
This part sounds boring, and it is, unless you are me. So luckily, I did it for you
2021 Tax Differences
working from home expenses: 80c per work hour
vehicle logbook expenses: 72c per km (click here for what qualifies as claimable)
work uniform laundry: Up to $150 without receipts
It is also worth knowing that each year the ATO targets a certain area for audits. A few years ago they looked hard at musicians and artists. Last year they targeted rental deductions and capital gains from cryptocurrency. This year they are focusing more on businesses and Jobkeeper. While it is a good thing to keep in mind what the ATO are targeting for their audits, it's nothing to be worried about if you are doing the right thing.
3. Gather your documents
The best way to get tax return ready is to keep all your documents in one place. Start by printing out any email receipts you might have. If you want to save paper, enter the amounts into your spreadsheet instead. Keep them in a folder that you can hand to your accountant.
Here is a list of the kind of documents you will need to have ready:
bank interest statement
summary of business income
rental property income
work related expenses
telephone and internet bills
receipts from charitable donations
rental property expenses
last years tax return fee (don't forget to claim this!)
You can have these expenses entered in your spreadsheet and keep receipts as proof. This saves you rifling through documents once you get to your tax appointment.
4. Estimate Your Return
Look at your payslip and find your income to date. Look at your tax paid to date. If you enter these into your spreadsheet, plus what you expect to earn before tax time, you can get a rough estimate of what tax you owe for the year, and whether you will get a return or a bill. It pays to be prepared! The Australian income tax brackets are currently under review, and are changing year to year. The income tax brackets for this year are:
2020 - 2021 Australian Income Tax Brackets
5. Find your Accountant
The hardest part when managing your finances is finding a good accountant. I tried a few different ones before I found one that specialises in the arts. Their services were a little more expensive, which put me off at first, but they ended up saving me thousands of dollars with their specialist knowledge!
You may not need that kind of thing. Maybe your goal is to get the cheapest possible service, as your tax is simple. Or maybe you work long hours so for you convenience is number one. Either way, it is worth investing some time in finding an accountant that suits your needs.
The Bottom Line
Getting organise early is a good idea. These five simple things will help you get ready for your tax return, and take the stress off when it comes time to submit your return in June. However, don't be too hasty. Best to get all those ducks in a line rather than rushing to get your return in early and making mistakes and not getting the best return possible.