Though paying taxes is a basic feature of Australian life, there are several legal ways to reduce your taxable income and consequently, your tax liability. Knowing and applying these tips can help you to improve your financial situation and save money. Read this article and learn how to reduce taxable income in Australia legally.
Understanding taxable income
Subtracting and offsetting all allowed credits and expenses determines your taxable income. It covers salary, wages, bonuses, company income, and investment income.
Techniques to reduce taxable income
1. Salary sacrifice
Salary sacrificing, sometimes referred to as salary packing, is the arrangement whereby an employee foregoes some of their income in return for incentives include a car, laptop, or superannuation contribution. Your taxable income can drop even while your take-home pay could increase.
- Pre-tax money placed into your superannuation fund reduces your taxable income and boosts your retirement savings. Usually far less than your marginal tax rate, contributions are taxed at a concessional rate of 15%.
Read also: how much do I need to retire on $100,000 a year?
2. Claim all eligible deductions
Your taxable income will be lower with your claim for all eligible deductions. Typical falls include:
- Work-related expenses: Tools, clothes, and travel fees are among work-related expenses.
- Self-education expenses: Class costs directly relevant to your current employment constitute self-education expenses.
- Home office expenses: If you work from home, you can claim a portion of your utility bills, internet, and phone expenses.
3. Deductions from Investment Property
Owning investment property lets you benefit much from taxes. Among the more noteworthy cuts are:
- Interest on Investment Loans: Deductible is the interest on investment loans applied for real estate purchase.
- Depreciation: Claims cover appliances, furniture, and buildings among other items.
- Property Management Fees: Fees paid to property managers are deductible.
4. Utilise tax offsets
Direct tax offsets reduce your tax owing. Common offsets abound:
- Low income tax offset (LITO): Anyone making less than a specified level falls under the Low Income Tax Offset (LITO).
- Low income tax offset (LITO): For qualifying seniors and pensioners.
- Medical expenses tax offset:: For nett medical expenses more than a specified level.
5. Negative gearing
The phenomena known as negative gearing is whereby the running costs of an investment property surpass their income. The loss helps you balance other income, therefore reducing your total taxable income.
6. Prepaying expenses
Paying some bills will expose current tax deductions. This is particularly helpful if you estimate your tax rate to be higher this year than the next one. Typical prepayment costs consist in:
- Interest on Investment Loans: Prepay up to 12 months of interest.
- Subscriptions and professional memberships: Prepay for subscriptions or memberships pertinent to your line of work.
7. Charitable donations
Contributions of $2 or more to registered charities are tax deductible. Save receipts, file claims on your tax return, and cut your taxable income.
8. Income Splitting
Think about split your money with your boyfriend or lover. You and your partner have to split your income to benefit from lowered marginal tax rates. This concludes with:
- Spouse super contributions: Contributions to your spouse’s super fund if their pay falls less than a specific level.
- Trust distributions: Using family trusts lets lower-tax bracket family members divide money in a way that promotes trust among them.
Tips for maximising tax benefits
Keep accurate records
Above all, you should carefully and honestly document your income, deductions, and expenses. This means you might defend your claims should the Australian Taxation Office (ATO) audit them.
Seek professional advice
Taxes and rules can be complicated and changeable. Negotiating complexity and maximising your tax benefits will depend on talking with a tax practitioner or accountant.
Review your tax strategy annually
Reviewing your tax plan on a regular basis guarantees that you are using all available offsets and deductions as well as keeping current on any changes in tax law.
Common Questions
How best might Australia’s taxable income be lowered?
Common choices are salary sacrifice, claiming qualifying deductions, using tax benefits, and making charitable donations; the best line of action will rely on your particular situation.
Can I deduct from my taxes working from home?
Among other things, you can subtract phone, internet, and utilities from your home office costs.
How does negative gearing operate?
Negative gearing lets you offset the loss on an investment property against your other taxable income, therefore lowering your total tax load.
Conclusion
Minimising your Australian taxable income requires knowing and claiming specific deductions. These solutions will allow you to legally reduce your tax burden and increase your revenue. To improve your tax situation and ensure tax law compliance, keep detailed records and consult with a specialist.
