7 tax return mistakes to avoid this EOFY

Dealing with taxes can be stressful, especially when it comes to ensuring that everything is in order. However, putting off tax planning or failing to keep track of your finances throughout the year can lead to costly mistakes.

In this article, we’ll explore the 7 common tax deduction mistakes you should avoid to help ensure your tax filings are accurate and you’re not leaving money on the table.

Neglecting tax until tax time

Dealing with taxes isn’t exactly enjoyable, but it’s not something you should put off until the last minute. The best thing you can do to ensure that your accounts and financial statements are always up-to-date is stay in regular contact with your tax accountant or bookkeeper.

Using accounting software can also be helpful, as it often offers convenient automation features and real-time insights at a more affordable rate than hiring a full-time accountant.

Regardless of which option you choose, proactive tax planning is the best way to prevent mistakes before they even happen, avoid penalties in case of an audit, and maximise your tax return.

Underclaiming

Whether you’re unaware of what you can claim or don’t have the proper documentation to back up potential tax deductions, underclaiming is a mistake that can unnecessarily up your tax bill. After all, you could be saving more money each financial year and not even know it.

Common deductions that small business owners miss out on include:

• Home office expenses such as utilities and phone bills
• Travel expenses for work purposes
• Fees paid to professionals for services related to your business (for example, to lawyers or business consultants)
• Business-related software subscriptions
• Superannuation contributions yourself or your employees
• Education and training expenses
• Interest on business loans

For more information on which business expenses can and can’t be claimed as tax deductions, you can always visit the Australian Taxation Office (ATO) website.

Overclaiming

Did you know that, according to the ATO’s small business random enquiry program, 5% of the taxpayers sampled were “clearly avoiding paying the right tax by deliberately under-reporting income or overclaiming expenses” [1]?

While you don’t want to underclaim and miss out on valuable deductions, you also don’t want to overclaim and risk facing penalties. The best way to avoid this is to refer to ATO’s official guidelines, keep detailed records of work-related expenses, and work with a tax agent.

As a general rule, a few deductions SMEs can’t claim include [2][3]:

• Personal expenses, like personal phone bills or car use
• Fines or penalties incurred by the business
• Most entertainment expenses
• Private health insurance
• Non-work-related education
• Interest on personal loans

Not looking into tax incentives

Over the years, the Australian government has created several tax concessions with the goal of relieving the tax burden on SMEs. Taking advantage of them could put thousands of dollars back in your pocket each tax year.

A few incentives you should know about include:

• Small business tax offset: A percentage-based reduction in the tax payable on your business income. Eligible businesses can get an offset of up to 16%, capped at $1,000 per person.
• Instant asset write-off (IAWO): A tax benefit that allows business owners to claim immediate deductions on the full cost of eligible depreciating assets in the year they first use or install them.
• R&D tax incentive: A tax benefit that allows eligible companies to claim up to a 45% refundable tax offset on any expense items that go into developing new knowledge.

If you’re unsure what your business is entitled to, we recommend you seek professional advice from your accountant, who’s best-placed to advise on your tax strategy.

Incorrectly claiming or reporting GST

If your business has a turnover of over $75,000 in a financial year (or $150,000 in the case of non-profits), you must register for GST (Goods and Services Tax) [4]. Not doing so alone can lead to penalties, so make sure you’re compliant.

If you are, you should only claim GST on business expenses, not personal ones. Plus, make sure you’re not omitting GST on your invoices or miscalculating it, as both mistakes can lead to financial discrepancies.

Missing tax deadlines

Missing the tax return filing deadline can be a costly mistake, as it can result in penalties and interest charges. It might seem obvious, but the easiest way around is to set reminders for important dates, such as EOFY (June 30th) and then tax return deadline (typically October 31st for sole traders, partnerships, and trusts and February 28th for companies [5]).

If you work with an accountant, they’ll also stay on top of these dates and work with you to ensure you’re always prepared.

Not keeping up with ATO guidelines

Tax laws are subject to change, and as a business owner, it’s important you stay informed. Not doing can cause you to make several mistakes listed in today’s article—miss out on deductions, claim ineligible ones, miss deadlines, and more. This can all increase the risk of an ATO audit, which can be stressful and costly.

There’s no source more reliable than the ATO to keep up with all things tax, so take the time to regularly review their guidelines on their website or go one step further by subscribing to their newsletters.

EOFY and tax season can be a great time to level your business. If you want to do so without draining your cash flow, Valiant offers a wide range of asset financing solutions to suit your needs. Receive free, tailored quotes in less than two minutes.

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References

1. https://www.ato.gov.au/about-ato/learn-about-tax-and-the-ato/tax-and-small-business/small-business-random-enquiry-program-findings
2. https://www.ato.gov.au/businesses-and-organisations/income-deductions-and-concessions/income-and-deductions-for-business/deductions
3. https://tv.ato.gov.au/media/bd1bdiubfw7bqc
4. https://www.service.nsw.gov.au/transaction/register-your-business-for-goods-and-services-tax-gst
5. https://business.gov.au/finance/tax/lodge-and-pay-tax