‘Costing you money’: How to avoid tax mistakes and add ‘tens of thousands’ to your income

Yes, tax time is confusing. But there are plenty of smart, simple ways to cut your tax bill today – and hang onto more of your hard-earned cash.

You want to save tax, but the rules are complex and confusing and it’s easy to get overwhelmed with all the options and conflicting messages – and then there’s the fear of making a mistake that could end up costing you a bunch of money.

For most people, it means being smart with tax ends up in the too hard basket, or being put off for a tomorrow that never seems to come around.

But the opportunity here is huge, with Aussies racking up $48 billion in tax savings this tax year alone – and smart planning will mean you hold onto more of your income that you can save, invest or just spend on your lifestyle (read: keep up with the cost of living).

Figuring out all the rules on your own is a tough gig – the right advice and support around your tax planning can be invaluable here. But finding good help with your tax is hard, so I wanted to unpack the key things you need to know to get the right support in your corner to cut your tax bill today and into the future.

Investing is the biggest tax opportunity

If you want to be successful with your money, your goal over time is to replace your salary with investment income. This means you’ll be building tens of thousands or even hundreds of thousands of dollars of investment income each year.

The difference between structuring this in the wrong way versus a good way versus the best way can be run into tens of thousands of dollars each year to your investing bottom line.

This means that for most people, investing is the one area that has the most opportunity for you to be smarter with your tax and create tax savings.

What you actually invest your money into, how you structure your investments and the timing of your investment moves all impact your tax.

Smart planning will mean you hold onto more of your income that you can save, invest or just spend on your lifestyle.

For example, investing in property can create tax deductions through negative gearing rules, or investing into Australian shares means you receive franked dividends with tax credits attached that increase your tax refund.

And then there’s how you own your investments – holding investments in your name, your partner’s name, through superannuation or through other structures like a trust can mean you pay less tax on this income.

Because it’s difficult (and can be expensive) to restructure things after you’ve built a huge investment portfolio, here you want to make smart moves early on in your investment journey to avoid nasty surprises down the road.

Accountants don’t charge enough

The first thing I wanted to call out is something that to some might seem obvious, but to most isn’t. Accountants don’t charge enough fees to deliver slow, hand holding, effective tax planning.

The average cost of having an accountant lodge your tax return in Australia ranges between $100 and $280, which might seem like a lot for just pushing your data through to the ATO. But if you think about how much time this buys you with an accountant, it’s not a lot.

It’s common for people to get frustrated with their accountant not taking the time to educate them and more proactively help reduce their tax, but the reality is that if your accountant is

charging a couple of hundred dollars to help you, they need to make sure their help is delivered quickly, or they’ll be losing money.

A good accountant will be able to add value when you do your tax return, but you’ll need more than just your regular accountant if you want to get the best result when you submit your tax return.

How financial advisers help with tax

Most people don’t automatically think about financial advisers when considering their tax planning. But while financial advisers don’t do tax returns, one of their main jobs is to minimise your overall tax position by being tax smart with your investment strategy.

A good adviser will help you understand some of the options available to (legally) minimise your tax position today, and help you set up a tax-smart investment strategy that will put you in a better position into the future.

Investing into property can create tax deductions through negative gearing rules.

Advice fees for accountants and advisers are also generally tax deductible if they’re helping you with your tax strategy and building investment income, so getting good advice can help you and give you more tax deductions today.

Finding good support

If you’re going to use an accountant or adviser or both to help with your tax, it goes without saying that you want to find a good one. But being able to tell whether your adviser is going to deliver results before you engage them can be difficult.

To give yourself the best chance of getting the results you want from your adviser, you want to put them through their paces before you jump in. The best way to do this is to ask for specifics about how they’re going to advise you – what is the process they’ll take you through and how do they make sure nothing is missed that could help you save more tax?

You should also ask for examples of other people in a similar position to you, how they’ve helped them and what some of the results have been.

If you ask them these questions and get clear, definitive answers and examples, this should go a long way to giving you the peace of mind that they will be able to deliver.

There will be a leap of faith, but asking quality questions can make that step a smaller one.

You need to build your tax muscle

Even if you have good help, to get the very best outcomes around tax now and into the future, you need to build your tax muscle.

Now, I’m not saying you need to understand every one of the thousands of pages of tax law, but when you build more tax knowledge, you’ll get a better outcome at tax time.

The key things you need to know are the basics of Australian tax rates, the things you can claim and deduct, how tax works on different types of investments and the strategies that can impact your tax position.

There are some simple ways to score a fatter tax refund. Picture: iStock

When you’re armed with this knowledge, you can plan better throughout the year and get more back at tax time.

This knowledge is built over the course of time, so don’t think you need to be an expert today.

Having good advice in your corner can help you accelerate your learning here, so don’t think you need to get it all from a textbook or frantic googling.

But each year as you work on your tax planning and tax return, you should be paying attention and taking a proactive role so you’re building your knowledge to get better outcomes into the future.

The wrap

Tax is complicated and it can be confusing, but it’s a code worth cracking.

Every dollar of tax you save is an extra dollar you can put to work for you and use to get ahead without sacrificing anything today.

Getting good support in your corner for tax time can be a game changer, helping you save more tax dollars faster and putting you on a better path into the future.

But choosing the right people to help make the right tax moves is all important if you want to get the best outcomes, so invest the time to get this right and your future self will thank you for it.

Ben Nash is a finance expert commentator, financial adviser and founder of Pivot Wealth, the creator of the Smart Money Accelerator, author of Replace your Salary by Investing and host of the Mo Money podcast. He runs regular free online money education event which you can book here