It is unavoidable to pay taxes. However, there are ways to reduce your tax burden by taking advantage of tax deductions.
There’s more to consider than tax concessions and cuts if you’re searching for creative methods to lower your taxable income. A solid tax strategy should be part of a larger financial plan. Here are some strategies for reducing taxable income in order to get the most out of yours.
Make Use of the Salary Sacrificing
Salary sacrifice allows you to lower your tax burden by allowing you to contribute part of your income to a retirement plan or pay certain taxes.
To benefit, you must forgo part of your pre-tax income before it is received. This can be utilized to cover expenses such as a new automobile, insurance, computer, mortgage or rent payments, and more.
You may save thousands of dollars in taxes by taking advantage of these perks, which are known as fringe benefits. There are limitations on what can be salary sacrificed or salary packaged. Potential Fringe Benefits Tax (FBT) may have an impact on the kinds of goods your workplace is willing to provide.
Another popular choice is to pay for a car via a novated lease, which is essentially a leasing agreement on wheels. These three-way deals between your employee, financer, and you may help you acquire a new automobile while also lowering your taxable income.
Consider salary packaging your super as an alternative to increasing your end-of-financial year payment.
Make Sure You’ve Paid Your Taxes
It doesn’t have to be a burden to keep track of your tax records.
All you have to do is be prepared and keep records. Keep all receipts using the Etax mobile app in order to make tax deduction claims.
Setting aside ten minutes each week to input receipts into the software aids with record-keeping for each tax year, making your tax obligation a lot simpler.
Controlling Your Debt
Even small debts can grow into major issues if they aren’t handled correctly.
Reduce your income tax payments by combining many debts into one manageable payment that you can keep track of. If you owe money on mortgage loans, investment properties, or credit cards, you may deduct the interest charges from your taxable income.
Following the debt repayment hierarchy will result in the lowest costs. However, pay off the non-tax-deductible debt with the greatest rate first and move down from there.
Deductions to Claim
It’s crucial to understand what tax deductions you are eligible for. Claim all genuine work-related deductions to reduce your taxable income as soon as possible.
Home Office Expenses
If you only deduct the business-related portion of your purchases, they may be deducted whether they were made for personal or work purposes. If you’re a property investor or company owner, there are additional possibilities to lower your tax burden.
Tax experts have identified unusually high claims for work-related circumstances in all sectors, so be aware of the limit or consult a professional if you’re unsure.
To receive the financial benefits when you pay tax, you must be able to document any claims of more than $300. If the claim is less than $300, you will need to explain how you worked it out if questioned by the IRS, but no written documentation is required.
Paying some expenses ahead of time might help you take larger deductions next year, lowering your tax burden and enhancing your bonus.
To benefit from pre-paid expenses, they must be less than $1,000 or meet the 12-month rule. This regulation allows you to claim an immediate deduction for a pre-paid expense if the service does not last longer than 12 months and completes in the following income year.
Make a Charitable Donation
Donations are a smart method to keep your taxable income low if you’re feeling generous.
Every amount of money given over $2 is tax-deductible. However, you must designate a registered charity as the recipient of your gift.
Donations can also be made in the form of items other than cash. Charitable donations, such as clothing, furniture, or household goods, may be taken advantage of and can assist with portfolio balancing by lowering capital gains.
Keep in mind that contributions will not be returned to your tax refund. Rather, the stated amount is deducted from your taxable income, resulting in a percentage return on your taxes.