Whether you get a cheque in the mail this year and how big it is, or whether you have to pay a tax bill, could depend on how you plan. But banking on getting a tax return so you can pay off credit card debt is not necessarily the best use of our tax system. Let me explain…
Just think to yourself, what you could do with a few extra hundred, or maybe even a few thousand dollars of income? Sadly, as mentioned above most spend it and pass the opportunity to someone else to build their nest egg. If you spend it, sure you might get a nice pair of shoes, or a new outfit, but in no time the goods are worth nothing. So what are you really left with?
No-one likes to fork out money to pay an unexpected tax bill, especially when it is so easy to find out in advance whether you will be getting a tax cheque or tax bill so you can plan better.
On the internet we have everything we need at our fingertips and the best place to look is the Australian Tax Office (ATO) website where you will find two tax calculators
- A Comprehensive Tax Calculator for those looking for a more precise result at: http://www.ato.gov.au/individuals/. When you get there simply select ‘Work out your tax’ in the left hand navigation and step through the process.
- Or if you don’t have a lot of time and don’t need the estimate to be precise use the Simple Tax Calculator at http://calculators.ato.gov.au/scripts/asp/simpletaxcalc/main.asp. It is important to be aware of the things that are excluded from this calculation.
Before you get started gather your personal financial information. Most people find this part to be a pain in the neck but it doesn’t have to be this way if you create a little system for yourself.
Years ago I did my tax, before I decided to hand the job over to my accountant, and so I set up a very simple system of record keeping consisting of a file for income and expenses and a checklist to make sure I have all of the information.
Here are 5 steps that will help you plan for tax time:
Step 1 – Proof of income. Write down a list of all income and any capital gains you received during the financial year. Locate the relevant documents -your group certificates, bank statements, dividend statements. If you sold investments like shares or property you will need the contract notes and other documentation reflecting the sale.
Step 2 – Work related deductions. Depending on your job or the investment income you may be able to claim deductions. If your total deductions are greater than $300 you need to have receipts.
Step 3 – Pull together any other deductions relating to your income and details of any donations you made that are tax deductible, along with your Medicare levy/rebate documentation/list of medical expenses.
If you are uncertain about what you can claim it pays to visit the ATO website as it covers everything in detail there. You will be surprised at what you can claim. http://www.ato.gov.au/individuals/pathway.aspx?sid=42&pc=001/002/013&mfp=001/002&mnu=42701#001_002_013
Step 4 – Your tax checklist. This will ensure you are unlikely to miss out on claiming something you are entitled to. Work out your income and deductions.
Step 5 – Tax Calculator. Determine your estimate to gauge whether you will get a return or whether you have to pay more tax.
Following a simple process like this will allow you to plan for the financial milestones ahead, which I will talk more about in our next article.
Janine Cox is the Senior Analyst at Wealth Within, a private investment company specialising in managing direct share portfolios through their Individual Managed Account Service. Janine can be contacted at email@example.com or you can visit the website www.wealthwithin.com.au.