Tax season: a storm of numbers, forms, and uncertainty.
Feeling overwhelmed? That’s completely understandable.
Lodging a tax return can be intimidating, but with the proper guidance and a step-by-step approach, you can confidently navigate this process.
Here’s what you need to know.
What is a Tax Return?
Simply put, your individual tax return summarises your income and deductions for a specific financial year.
The purpose?
To determine if you’ve paid the correct tax amount or are entitled to a refund.
Think of it as a yearly financial check-up, where the government assesses your financial health. Intriguing, isn’t it?
According to the Australian Taxation Office (ATO), approximately 12.2 million individuals lodged tax returns for the 2019-20 financial year. With such a large number, you can imagine the variety of income sources and deductions at play.
Now, let’s say you’ve earned some extra cash through a side gig or freelance work. You might wonder, “Do I need to report this, too?”
The answer is yes.
You must report all sources of income when you lodge your tax return, from wages to investment income and everything in between.
But don’t worry – that’s where deductions come in. These reduce your taxable income and, in turn, the amount of tax you owe.
For example, if you’ve incurred work-related expenses, you may be able to claim them as deductions, ultimately lowering your tax bill.
What Information Do You Need to Lodge a Tax Return?
Gathering the correct information is crucial when lodging a tax return, as it will determine your income tax level or the tax refunds you may receive.
Firstly, you’ll need your Tax File Number (TFN), a unique identifier assigned by the ATO.
It’s the key to unlocking your personal tax account and keeping track of your financial history. Next, gather details of all income sources, including employer payment summaries, income statements, bank interest, business income, dividends, and rental income.
Accuracy is vital here, as the ATO cross-checks this information with data provided by employers, financial institutions, and other entities.
When it comes to deductions, organisation is your best friend.
Collect receipts and documentation for work-related expenses, such as uniforms, home office expenses, or professional development courses. In the 2019-20 financial year, Australian taxpayers claimed over $23 billion in work-related deductions.
These deductions can significantly impact your tax refund, so it’s worth gathering the necessary paperwork.
Finally, don’t forget your personal details, such as your full name, date of birth, and current address.
While it may seem trivial, having this information readily available will make the process much more efficient.
Checklist: Documents for Lodging Tax Returns
Here’s a checklist to help you gather the necessary information for lodging your tax return:
- Tax File Number (TFN)
- Income details:
- Payment summaries from employers
- Income statements (e.g., from online platforms)
- Bank interest
- Dividends
- Rental income
- Any other sources of income
- Deduction documentation:
- Receipts for work-related expenses
- Home office expenses
- Professional development courses
- Uniform or protective clothing costs
- Travel expenses for work (excluding commuting)
- Any other relevant deductions
- Personal details:
- Full name
- Date of birth
- Current address
Can You Submit Your Tax Return Online Without Professional Help?
Submitting your own tax return online without professional help is entirely possible, thanks to ATO’s user-friendly platform, myTax. This digital service streamlines the process, making it accessible for individuals to lodge their tax returns independently.
In fact, in the 2019-20 financial year, more than 6 million Australians successfully lodged their tax returns using myTax. The ATO designed the platform with convenience in mind, pre-filling some information from employers, banks, and government agencies to save you time and minimise errors.
However, you need to consider the complexity of your tax situation.
For straightforward tax returns with minimal deductions, myTax can be a cost-effective and efficient option. For example, an individual with a single employer, standard deductions, and no rental properties may find it relatively easy to navigate the online system.
But, if you have multiple income streams, investments, or significant deductions, it might be beneficial to seek professional advice.
When Should I Use a Registered Tax Agent?
Deciding whether to use a tax agent largely depends on your individual tax situation and the level of expertise required. Sometimes, using a tax agent can be a wise investment, while it might not be necessary for others.
Here are a few scenarios where seeking professional help could be beneficial:
Complex Financial Situations
Suppose you have multiple income streams, investments, rental properties, or run a small business. In that case, a tax agent can help you navigate the intricacies of your tax return and ensure you’re meeting all compliance requirements.
Take Laura, a 42-year-old graphic designer who works full-time for a large corporation, for example.
In addition to her day job, Laura freelances for several clients, earning extra income from various design projects. She also recently decided to invest in real estate and now owns two rental properties.
So, Laura’s financial situation is quite intricate due to multiple income sources and investments.
Her tax return must account for her salaried income, freelance earnings, and property rental income. Plus, she has work-related expenses, such as a home office, design software subscriptions, and travel expenses for meeting with freelance clients.
On top of that, Laura has expenses related to her rental properties, such as mortgage interest, property management fees, maintenance costs, and depreciation.
In this scenario, a tax agent can provide Laura with expert guidance to navigate her complex financial situation.
Maximising Deductions
Tax agents have extensive knowledge of tax laws and available deductions. They can help you identify and claim all eligible deductions, potentially saving you more money than the cost of their services.
Time Constraints
If you’re short on time or find the tax return process overwhelming, a tax agent can alleviate the stress and handle the process on your behalf, allowing you to focus on other priorities.
Staying Up to Date
Tax laws and regulations change frequently. A registered tax agent stays informed on the latest updates, ensuring your tax return is prepared accurately and in line with current legislation.
Audit Assistance
In the event of an ATO audit, having a tax agent in your corner can be invaluable. They can provide guidance and support, helping you address any concerns or discrepancies.
Key Takeaways
Mastering the tax return process is an essential skill that empowers you to take control of your financial well-being.
As you move forward, remember to assess your individual circumstances and determine the best approach for lodging your tax return.
For more expert advice on how to pay tax, resources, and tailored support from a registered tax agent, don’t hesitate to contact us at KNS Accountants – we’re here to help you every step of the way.
