How to maximise your tax deductions

Your tax refund can be significantly increased through the use of tax deductions.

Deductions make the tax system more equitable; if you have to spend additional money that is connected with how you earn your living, then you get something back for that. Deductions are a tax credit.

You're in a bit of a different category when it comes to filing your tax return if you're a freelance creative, a mumpreneur, or have finally taken the plunge to launch your own business selling a product or service.

Required to work from home due to COVID-19?

A significant number of office workers in Australia are currently confronted with the possibility of being required to participate in work-from-home arrangements for periods ranging from several weeks to an entire month.

In light of the fact that you now conduct all of your professional activities from the confines of your own home, what implications does this have for your tax situation?

The good news is that there is a possibility that you will be eligible for some additional tax deductions this year. In this article, I will outline some straightforward actions that you can take right away to make the most of those deductions.

The following advice will help you get the most out of your tax deductions:

What home office expenses can I claim?

The expenses associated with a home office that are tax deductible can be broken down into two primary buckets:

• Expenses related to occupancy, such as rent, interest on a mortgage, council and water rates, land tax, and premiums for homeowners insurance; and
• Expenses for running the business, such as the cost of utilities like electricity and gas for heating and cooling, lighting, costs associated with cleaning, depreciation, leasing fees, office supplies, and the cost of repairing office furniture and furnishings.

Unless a portion of a taxpayer's home office qualifies as a "place of business" (for instance, where part of the family home is used as a doctor's surgery), only the operating expenses incurred in operating a home office are deductible. This is the case even in situations where a portion of the taxpayer's home office is used as a doctor's surgery.

In addition, the expenditure needs to be associated with facilities that are provided solely for the advantage of the taxpayer.

For instance, if the taxpayer and his or her family are present in the same room while the taxpayer is working, the amount of expenses that are eligible for deduction will be significantly reduced.

Have you spent cash on equipment?

If you're a freelancer, it's likely that you made an initial investment in some tools or equipment when you first started out. Additionally, you may incur ongoing equipment costs for things like a camera, laptop, and possibly even some power tools, accessories, or software.

You should be able to deduct the cost of these in the vast majority of situations.

When and how you can get reimbursed for the costs of your freelance equipment:

• Include up to $1,000 in deductions for work-related tools and equipment on your annual tax return.
• Depreciation should be claimed over a number of years for tools and equipment that cost more than one thousand dollars.

Calculating expenses

Taxpayers are permitted to claim a pitiful fixed rate of 52 cents for each hour worked from home for the cost of all heating, cooling, lighting, cleaning, and depreciation of office furniture (this amounts to approximately $20 per week if working from home full-time).

Those taxpayers who claim the fixed rate are then required to perform the following calculations separately:

• phone and internet expenses;
• stationery and other computer-related consumables; and
• a fall in value experienced by computers and other types of equipment

Due to COVID-19, the Australian Taxation Office (ATO) has just recently implemented a "shortcut method" designed specifically for taxpayers who work from home. This method enables taxpayers to claim a flat rate of 80 cents per hour for all additional running expenses (i.e. heating cooling, lighting, cleaning, depreciation, phone, internet and computer consumables).

Taxpayers who choose to use this approach are required to perform more than minimal tasks, such as occasionally checking emails or taking calls, and they are also required to keep records of the amount of time they spent working.

Taxpayers also have the option of calculating their actual outlays for each of the aforementioned categories.

This necessitates keeping more detailed records, but depending on the specifics of a taxpayer's situation, it could result in increased deductions.

This page contains additional resources that explain how to accurately calculate the costs of operating a home office.

How to maximise home office expense deductions?

If you find yourself working from home as a result of COVID-19, here are three easy steps you can take right away to maximize the amount of money you can deduct from your income tax return:

• Create a home office space that is separate from the rest of your home and has its own dedicated workspace. When a taxpayer designates a specific room in their home as their workplace, the Australian Taxation Office (ATO) allows them to claim a wider variety of deductions. In most cases, the amount of deductions will be lower if you choose to use a room that is shared with other people.
• Make your dedicated work space the largest room in the house that is currently available to you. When determining certain deductions, the square footage of your designated work space will be taken into consideration; consequently, the more space you have at your disposal, the better.
• If you want to get an immediate tax deduction, it is best to purchase equipment for your home office that costs no more than $300. For depreciable assets with a cost of $300 or less that are used by taxpayers to generate non-business assessable income, they are eligible for an immediate deduction in the amount of $300.

Will I lose the main residence CGT exemption if I work from home?

The "main residence" exemption allows homeowners to avoid paying capital gains tax on the primary residence of themselves and their dependents.

On the other hand, taxpayers are only eligible for a partial exemption in the event that the residence was also utilized as a place of business. According to the Commissioner's statement in Taxation Ruling TR 93/30, a private residence has the potential to function as a place of business.

"Where part of the home is used as the sole base of operations for a taxpayer's income-producing activities (for example, where no other work location is provided to an employee by an employer) ". "Where part of the home is used as the sole base of operations for a taxpayer's charitable activities."

With regard to COVID-19 and vacant office buildings, this component of the ruling unquestionably has room for improvement in the form of an update.

The recently updated ATO website, which confirms that taxpayers who work from home as a result of COVID-19 will not lose the main residence CGT exemption on the basis that the home has become a place of business, can be a source of some comfort regarding this issue. COVID-19 allows taxpayers to work from home.

However, taxpayers must not begin claiming occupancy expenses (mortgage interest, etc.) during this period because the website suggests that the main residence exemption will be partially lost in situations where occupancy expenses have been claimed. Taxpayers must refrain from doing so.

Things to consider for your tax return

You will need to give careful consideration to a great number of different factors. Continue reading so that you'll be prepared!

Get your ABN

If you have already established yourself as a business, then there is a good chance that you have already registered for an ABN quite some time ago. But if you're just getting started, you should do this first!

Without this, most companies won't do business with you, and if you don't have it, the Australian Tax Office (ATO) won't be able to keep tabs on your earnings.

Register for GST

If your annual revenue from your company is greater than $75,000, you will be required to register for the Goods and Services Tax (GST). You have the option of paying your Goods and Services Tax (GST) on a monthly, quarterly, or annual basis, depending on how much money you make. To ensure that you meet all of the applicable deadlines, you will need to create and send in a Business Activity Statement (BAS), which you can do so electronically through the ATO.

Get a head start and create an expense sheet for incoming and outgoing GST right away because it's likely that you'll be paying GST on the services you require to finish your work (things like cloud storage services, creative software, accounting services, etc.).

Claiming Deductions

Okay, now that we've gotten all of the boring details out of the way, let's talk about the exciting part: what you have the legal right to demand.

Home Expenses

If you do the majority of your work from the comfort of your own home, we have some wonderful news for you: you may be eligible to deduct a portion of your living expenses as well as the costs associated with maintaining your home from your taxable income.

You will be able to make a claim against a wide variety of things, including but not limited to the following: rent, mortgage interest, and house insurance (based on the percentage of space used for work); energy bills; phone and internet bills; and even the depreciation, repair, and cleaning fees associated with furniture.

At long last, the cost of living appears to be somewhat more justifiable.

Safety first – protective items.

Because there is only one of you, you have the responsibility to take care of yourself. To the freelancer's good fortune, the costs of purchasing, cleaning, and repairing work-related protective items can all be deducted from their taxable income.

Freelancers frequently claim the following items as part of their protection:

• Gloves
• Aprons
• Overalls
• Steel capped boots or non-slip shoes
• Hard hats
• Hi-vis vests
• Sunglasses and sunscreen (if you work outdoors)
• Goggles or visors

Mobile Phone Expenses

If you didn't have your phone, freelancing would be nearly impossible because you wouldn't be able to keep up with client calls, email requests, and app requests.

to monitor and maintain a log of the amount of time spent on work-related activities over the course of a month.

To give one example: do you use your phone for work 45% of the time? You should include a 45% deduction on your tax return for the cost of your monthly phone plan. – Simple.

Tools & equipment

Have you made any purchases of tools or machinery to assist you in running your business?

This encompasses electronic devices such as mobile phones, laptop computers, and digital cameras, as well as power tools for the self-employed craftsperson.

If you own and operate a company, you have the option of claiming an instant asset write-off for up to a maximum of either $20,000 or $30,000. Have a conversation with one of the accountants here at POP to find out what kinds of tools and equipment you can deduct from your taxes.

Car and travel

Because you perform the majority of your work from the comfort of your own home, you may be entitled to expense deductions for any trips that take you outside of the immediate area. This includes costs associated with private automobiles, public transportation, taxis, parking fees, and even air travel.

Getting around—costs associated with driving and traveling

Freelance work often requires you to be mobile during the week, so it's important to plan accordingly. Whether it's making a presentation to potential new customers or delivering finished goods, you should take precautions to avoid losing money.

Keep track of all of your travel expenses as well as the mileage you put on your personal car. There is a possibility that you will be able to get tax breaks for the money you spend on your car and on travel related to your work.

The costs associated with driving for work-related errands. (With the exception of travel to and from your regular place of employment.)

• Parking
• Tolls
• Taxi fares
• Flights
• If you are required to stay away from home, you will be provided with lodging and meals. Take, as an illustration, the scenario in which you had to spend the night in a different city in order to install some software.

Superannuation

When you work as a freelancer, you no longer have a boss who will contribute to your retirement account for you; therefore, it is your responsibility to do so. Your contributions to your retirement plan can reduce the amount of income tax you owe, so it is in your best interest to plan for your retirement.

You are exempt from the obligation to make payments into your superannuation fund if you are self-employed or run a sole proprietorship.

Even though it's never a bad idea to put money aside for your future, if your employer doesn't participate in a designated contribution scheme, you are free to plan for your future in whatever manner you feel is most appropriate for you.

Having said that, if you choose to make voluntary contributions to your Superannuation, you may be eligible for a deduction on those contributions when it comes time to file your taxes.

You will need to submit a Notice of Intent to Claim (NIT 71121) in order to claim a deduction for your Super contributions. In addition to this, there are some other factors to take into consideration, such as whether or not you will exceed your contribution caps.

You should do some research to determine whether this is the best strategy for you, but it's nice to know that you'll be rewarded just for adding a little bit more money to your savings account for the future!

Personal Services Income (PSI).

Imagine that your knowledge, expertise, skills, and/or labor are responsible for more than fifty percent of the income you earn from freelancing.

Assuming this is the case, the Australian Taxation Office (ATO) will refer to the money you make from freelancing as "Personal Services Income" (PSI). This classification applies to the vast majority of freelancing jobs, which means you can potentially claim a few additional things.

Additional tax deductions available to freelancers with PSI income include the following examples:

• Expenses related to advertising and quoting
• Fees for licenses and registrations in the industry
• Costs associated with banking and accounting
• Insurance premiums and legal fees, if applicable

Filing your tax return

In the end, if you are self-employed or run a sole proprietorship, your tax return is going to be extremely customized to your line of work and circumstances.

From the very beginning to the very end, you can count on our assistance with this matter. A tax return with POP Tax will only cost you $129 if you are doing business under an Australian Business Number (ABN).

In addition to this, you have the choice between paying for it up front or having it deducted directly from your tax return.

Other Tax Tips for Freelancers

Keep that receipt!

The requirement to keep receipts is without a doubt the single most important thing to keep in mind.

It is the only way for you to get any cashback from the ATO at any point in the future. From that shiny new printer to that cool notebook you picked up at Kiki K, everything about it is cutting edge. In most cases, you are eligible to make a claim for it if you used it in the course of your work as a freelancer.

Keep it separate

Create a new bank account specifically for your freelance work and all of the associated income and expenses.

If you do not have to paw over statements that include all of your cash flow as well, it will be much easier for you to understand the financial aspects of your freelancing business, as we assure you.

If you keep your finances organized in a separate account, you and any financial institution you work with will always know exactly how you are doing and what your ongoing costs are.

This is necessary in the event that you decide to apply for a loan in the future. Having just one account for all of your freelance work makes filing your taxes much simpler.

Take advantage of the software.

Think about using accounting software to keep track of your expenses and bills, in addition to your incoming and outgoing invoices. Using accounting software will assist you in maintaining structure and order in your freelance business finances. As a result, you will be able to spend more time actually earning money rather than trying to figure out where it is all going.

How can I claim tax deductions without receipts?

If you don't have a receipt, can you still claim a tax deduction for the purchase? Because the ATO is becoming more stringent, making a claim without a receipt is becoming somewhat risky, but it is still permissible in some circumstances. Let's look into this and see what we can do to stay out of ATO trouble.

Even if you don't have the receipt, it's possible that you can still get a refund for those items.

There are circumstances in which you can claim a tax deduction even if you do not have a receipt; however, the restrictions on this are quite stringent.

To begin, the expense in question has to be "allowable." This indicates that you ought to be able to respond positively to these questions.

• Is it necessary for your job and does it have a direct connection to it?
• Have you footed the bill all by yourself?
• Were you not compensated or reimbursed for your expenses by your employer (or by anyone else)?

If you can answer yes to all of those questions and have a credit card statement or bank statement that shows transactions for the item(s) you purchased, then if it comes down to a fight with the ATO, they may sometimes agree to let you deduct those expenses.

On the other hand, you should not put yourself in such a precarious position! Because if they decide not to allow your deduction, you may have to pay the money back to the ATO in a short amount of time. That is unpopular with everyone.

It gets more complicated if a purchase contained some items that you are allowed to claim and some items that you are not allowed to claim. You will need some method to differentiate between the expenses incurred for work and those that are either personal or cannot be claimed.

What are some common items that you might be able to claim without a receipt?

• Membership Fees or Union Fees: These Will Usually Be Itemized On Your PAYG Summary or Income Statement Or Any Other Summary That You Get From Your Employer Or Tax Agent Membership Fees or Union Fees: These Will Usually Be Itemized On Your PAYG Summary Or Income Statement Or Any In most cases, a receipt is not necessary as long as you can demonstrate that the necessary documentation was obtained.
• Fuel/petrol with a logbook: If you keep a proper car logbook for at least 12 consecutive weeks (over a period of five years), then you can use the work-related kilometers you've traveled along with the size of your car and a nominal fuel rate to include a petrol deduction on your return. If you do not keep a logbook for at least 12 consecutive weeks (over a period of five years), then you cannot include a petrol deduction on your return. Your tax agent should be able to assist you in figuring this out.
• Gasoline or petrol without a record book: Even if you haven't been keeping a car logbook, as long as you can demonstrate how you calculate the number of kilometers you're claiming, the ATO will allow you to make a claim of 68 cents per kilometer, up to a maximum of 5,000 kilometers, on your taxes. This is the case even if you haven't been keeping a car logbook.
• Items Related to Computers If you have a credit card statement and you make a note against it at the time of the purchase (for example, new home office computer from JB Hi-Fi), it will be easier to find and use as evidence later on. It is also helpful if you take a picture of the product's packaging; however, if you are able to do so, you should take a picture of the receipt rather than the package.
• If you have a credit card statement and you make a note against it, you should put it on stationery (e.g. Big W, calculator, ruler, pack of pens). Taking pictures of the items is extremely helpful, so make sure you do that.

How much can I claim with no receipts?

You can make a claim for work-related expenses even if you do not have any receipts for them, up to a maximum value of $300, according to the guidelines provided by the Australian Taxation Office (ATO).

There is a good chance that you can submit a claim for more than $300. Your tax refund might become significantly larger as a result of this. Nevertheless, because there are no receipts, it will come down to your word against theirs.

According to the ATO, "no proof, no claim," so make sure to keep all of your receipts throughout the year. In that case, you are unable to go above the $300 threshold.

Even if the expense you are claiming is less than $300, you should still be prepared to explain what it was, how you paid for it, and how it relates to your work.

When preparing your tax return, claiming deductions without a receipt can be a challenging and error-prone process, and doing so is not at all recommended. Most of the time, this means that you miss out on tax deductions or even cause some trouble with the ATO for yourself.

It is not only important but also simple to keep all of your receipts throughout the year so that you do not forget anything important when it comes time to file your taxes; doing so will save you money.

Talk to a tax agent to ensure that you are registered correctly and that you are current on all of your tax and reporting obligations in general. A straightforward credo to live by when working independently: "If you aren't sure, ask!"