It's the last day of the financial year today – and that means one thing. Yes, tax time 2020 is upon us in all its glory.
While doing your taxes can be either time consuming or expensive (or both, depending on how you lodge), it can also be an exciting time for investors. Many people will be receiving a tax refund for the year, which is always a welcome arrival. If I'm lucky enough to receive a refund this year, it will be going straight into buying more ASX shares for my investment portfolio, but that's just me.
So, on that note, here are 3 ways you can help ensure you get the best bang for your buck at tax time 2020!
Tip 1) Be sure to claim all the deductions you're entitled to
The size of any potential refund depends on 3 things: how much income you've earned over the last 12 months, how much of your spending you can claim as a tax deduction, and how much tax you've already paid over the year.
It's this combination that will determine how much money you can expect back from the taxman for FY20.
Generally, we don't have much say in how much tax is withheld from our salaries. And I'm confident most of us take steps to maximise our raw income. This only leaves the deductions as the best vehicle for boosting our tax returns. There are countless rules, exceptions and nuances that dictate what kind of deductions you can claim. So, remember to always check with a tax professional if you are unsure of anything. But as a general rule, if you spend money during the course of earning money, that spending is often tax deductible. Furthermore, keep in mind that other forms of spending can also constitute deductions. These include charitable donations and contributions to political parties.
Tip 2) Don't forget to include all assessable income
This tip might not save you money initially. But it certainly will if you weren't planning on declaring all the income that you should and later get found out by the Australian Taxation Office (ATO). Remember, if you received money from your labour or your investments over the course of the last 12 months, chances are you'll need to declare it. This includes any gains you have banked from foreign currencies, selling shares, receiving dividends or distributions, or trading cryptocurrencies.
Tip 3) Pay a fair price for your accountant
Many Australians like to delegate their tax affairs to an accountant or tax professional. Whilst this might be the right move for some people, others may prefer to save money by completing their own tax return. The ATO has made it very easy to do your tax online. Most people's income (including ASX share dividends) is now pre-completed. If you have relatively simple tax affairs, it might just be worth dedicating a few hours to managing your own return to save a couple of hundred dollars. If you do decide to employ a tax professional to look after your return, be sure to do your research so you know you'll receive high quality service at a reasonable price.
