Everyone wants to pay less taxes to the government. But hiding your income or lying about your expenses isn’t the answer. Here are 5 legal ways to lower your taxable income with a few added side benefits.
Contribute to Superannuation
Contributions to superannuation are mandatory at one level, but there are tax breaks if you contribute more money to superannuation plan. This is essentially the government subsidising retirement savings. You can avoid a surprise tax bill by putting any end-of-the-year bonus in the retirement account. If you have a low income, the government often matches your contributions 50-50. And you can contribute money on behalf of a non-working spouse. You can even pay some money toward the savings of a lower income spouse. When you pay into a super fund the money doesn’t disappear. It’ll be ready and waiting for you when you retire. Start sooner rather than later, since the money grows tax free until you withdraw it.
Claim Work Deductions
You can deduct work related business expenses. Note that you should keep records, and if you claim more than 300 dollars’ worth of expenses, you’ll need receipts. Work related deductions can include professional seminars, computer equipment, reference materials, professional magazine subscriptions, mobile home costs and the money you pay a tax preparer. You may even be able to deduct travel expenses for work. Know that unusually high work-related expenses will get you audited.
Get Income Protection Insurance
The Australian tax office considers any payment on insurance to cover your income tax deductible. Note that the premiums for an income protection insurance policy may only be deductible if it’s a standalone product. You can compare income protection insurance to find the policy with the best overall value.
Review Your Potential Deductions
Debt costs you money, but you can deduct the interest you pay on a number of debts as well. Note that this doesn’t mean you should go into debt buying junk or taking vacations and calling it a tax deduction. However, the interest you pay on your mortgage can offset your tax bill. Know that not all debt is tax-deductible. This is why you should prioritise paying off your credit cards over your mortgage aside from the higher average interest rate on the credit cards. Total up your debts and find out if the payments are deductible. You may be able to save money by pre-paying deductible interest as well.
Another common category of deductions people overlook are charitable deductions. Both the value of items you donate to charity and the money you give them are tax deductible. Note that you have to make the deductions before June 30 to claim it on this year’s tax return.
Think About Your Capital Gains Tax
If you buy an investment and sell it at a profit, you’ll owe capital gains tax. If you hold it for at least a year, you’ll be taxed at 50 percent of the gain at your tax rate. One way to legitimately offset this tax bill is to sell other under-performing investments at a loss. Take losses sooner rather than later so that you can invest the money into profitable ventures and offset gains this year. After all, you have to pay capital gains tax the year the gain is realised. On the other hand, a major loss can be carried forward but not back.