The ‘neglected’ $2,000 tax deduction missed by Australians

For most people, taxation is one of the biggest opportunities to move forward faster. But the rules are confusing and complicated and it’s easy to get overwhelmed. This leads most people to stick their heads in the sand or put tax in the basket too hard.

But when you get your tax planning and the right strategy, you can keep more of your income and make your money grow faster. It can be complicated, but there are a few key areas you should go through nail your tax planning before EOFY.

Understand your potential deductions

Every dollar of tax deductions you rack up will lower your tax bill, and you don’t want to leave any money on the table.

You can deduct work-related expenses, investment expenses, professional investment and tax advice, self-education expenses, and potentially much more depending on your occupation and what investments you currently have in place.

The most overlooked tax deductions I see are for self-education and professional development, which can often add up to thousands of dollars in tax deductions each year. Recent data showed that 30% of Australians spend an average of $1,936 on vocational training each year.

For education expenses, the Australian Taxation Office (ATO) has clarified that all self-education expenses are deductible even when they are not exactly in the area in which you currently work.

You can also generally deduct the cost of subscriptions to content that helps you in your work, such as subscriptions to newspapers or online news sites. This means that in addition to formal studies, any short course, online course, or other content-based training can help lower your tax bill.

The OTA website contains very useful information on which tax deductions you can claim and which you cannot – educating yourself here will pay off.

It is worth remembering that it is essential that you keep good records of your deductible expenses if you wish to claim them. I talk to too many people who are unaware of their record keeping throughout the tax year, only to realize when they do their tax returns that they don’t have the information they need to claim their deductions.

Setting up a digital tax shoebox and controlling your record keeping throughout the fiscal year will make your life easier at tax time and allow you to claim everything you are entitled to.

Advance purchases (necessary)

If you’re spending on things that are deductible, incurring the expense in June versus July means you’ll receive the tax benefits a full year sooner, saving you taxpayer dollars that can be used to build your wealth (or maybe just fund your next vacation).

Spending on something that is tax deductible will save you tax, and it makes a lot of sense to advance your tax deductible expenses before EOFY, but it still costs you money even after saving tax. ‘tax. This means that spending before EOFY will only put you in a better position if those expenses are things you really need.

Selling investments in a loss position

When you sell an investment for less than you paid, you lock in a “capital loss” which is reported to the ATO. These losses then offset any capital gains you realized in the same fiscal year. Since the investment markets are currently down, this creates an opportunity to refresh your investment portfolio and save taxpayer dollars in the process.

If you have made investment gains this fiscal year and have investments in a loss position, selling them before EOFY will reduce your investment tax bill when you file your return.

To assess whether this will benefit you, review your investments in the current financial year and confirm the gains you have made. Next, review all of the investments you have in a losing position with a view to balancing your gains.

Be aware that investment losses do not help reduce non-investment income, so unfortunately they cannot reduce tax on your employment income – but given the ups and downs we have seen in investment markets in the current financial year, selling investments at a loss can make a big difference to your tax situation.

Prepay deductible interest

When you borrow money for investment purposes, the interest expense on that debt is tax deductible in the fiscal year the interest expense is paid. This means that if you pay off your interest expenses before the EOFY, you can increase your deductions and increase your tax return.

Get good professional advice

Most people know that your accountant’s fees are deductible, but don’t realize that fees paid for investment and strategic tax advice are also generally tax deductible. This type of advice can help you grow your investments and wealth faster, and getting a deduction for the cost of the advice magnifies the benefits for you.

The envelope

Most people don’t think too much about their tax return until the end of the fiscal year, but thinking ahead creates an opportunity to take smart action in that fiscal year and benefit yourself sooner.

Every tax dollar you save creates additional money that can be used to build your wealth, which then accumulates each year. Invest the time to do it right and it will pay off for years.

Ben Nash is an expert finance commentator, podcaster, financial advisor and founder of Rotate Wealthand author of Amazon’s best-selling book’Get Unstuck: Your guide to creating a life not limited by money‘.

Ben has just launched a series of free online financial education events to help you get ahead financially. You can check out all the details and book your spot here.

Disclaimer: The information in this article is general in nature and does not take into account your personal goals, financial situation or needs. Therefore, you should determine whether the information is appropriate for your situation before acting on it and, if necessary, seek the advice of a financial professional.