Taxation is a complicated and even boring topic for most people. However, knowing how taxation works can actually help you save you money at the end of the year. And you can do so in a perfectly legal manner through the aid of tax deductions.
Tax deduction is a sum of money allowed to be deducted from your taxable income at the end of the year. These deductions are allowed depending on the products and services availed by the person. Usually, allowable deductions are awarded to workers who incur additional costs to perform their jobs more effectively. These include clothing expenses, travel expenses and other lifestyle expenses. Donations and gifts are also deducted from the taxable incomes.
To further explain how allowable deductions work, consider a regular labourer. In the previous year, he was able to earn $10,000 dollars. However, he was forced to spend a fraction of his income for some work requirements. He had to spend $500 dollars to buy protective clothing. He is allowed to deduct this amount from his taxable income. Hence, only $9,500 will be considered when computing for the amount he needs to pay. If for example, the tax he has to pay is 10% of his taxable income, he will only have to pay $950 instead of the $1000 without deductions. He will be able to save a total $50 due to the deductions.
Moreover, here are some tips on how you can familiarize yourself with tax deductions and make the most of them. You will be surprised by how much you can save at the end of the year.
Keep Your Receipts
If you are like most people who throw away the receipts or slips of transactions, you may have to think again next time. In order to avail of allowable transactions, you will have to present proofs of transactions and purchases. However, if you have already lost your receipts, you can still avail of fixed rates for work-related costs. On the average, $300 of work-related expenses can be compensated alongside $150 worth of laundry services. Others may require detailed summaries of transactions so it is best to check the requirements imposed by the ATO. Workers are also encouraged to keep their notice of assessments for future reference.
Have a Tax Agent
Aside from using the spread sheet programs to keep track of your finances, you can also use the E-tax program. Through the internet, you will be able to keep track of your expenses and easily identify which if your expenses you can get deductions from. The program also features quick links to the ATO site for quick reference.
However, hiring a tax agent is still the prescribed move by financial advisers and analysts. It is true that it will you to have them manage your taxes but most people find them worth it. Unlike computer programs, these trained professionals can dig deeper into your expenditures and further analyse your possible claims.
To learn more about allowable deductions, visit the ATO site at www.ato.gov.au