How to cut your tax bill before the end of the financial year

Tax time is around the corner, so here are the most important things you can do to slash your tax bill and get a larger refund.

Tax time is around the corner, and with the cost of living crisis in full swing there are more than a few Aussies who are looking forward to the pressure relief of a healthy tax refund.

But the tax rules can be a little complicated and confusing, and it’s common for people to miss things that mean getting less back in tax.

Here, we to cover the key things you can do to cut your tax bill before EOFY and get more back in your tax refund.

Claim everything you can

Reality is that most people leave money in the ATO’s back pocket simply because they don’t claim everything they’re entitled to.

Take the time to understand everything you can legally deduct, and then make sure you’re claiming it.

You’re entitled to claim a lot of expenses that relate to your work. For most people, one of the biggest areas for deductions are work-from-home expenses for your home office, technology and stationary etc.

Where you have dedicated space for a home office location you can even claim part of your utilities and potentially even part of your rent or mortgage.

Motor vehicle costs are another big area for deductions, with every taxpayer able to claim deductions of up to $4250 p.a. for work related travel.

You can also claim up to $300 without receipts for work related expenses, but you do need to be able to back up your claim if the ATO asks questions.

If you have any tax deductible expenses you have planned for next financial year, it’s worth considering bringing these forward to before June 30. This will give you the tax deductions, and the associated tax refund a full year sooner.

The ATO have a heap of helpful and easy to understand guides on their website, so take the time to level up your knowledge so you’re aware of everything you’re entitled to claim – then make sure you actually claim it.

There's an easy way to shave thousands from your tax bill. Picture: iStock

Keep good records

To make your tax return lodgement easier, and to ensure you don’t miss anything, keeping good records is crucial. When you have all your tax information at hand, it makes your work much easier when it comes to laying out all the details of your tax lodgement.

But more importantly, it will make sure nothing gets overlooked, which means claiming every dollar of tax you’re entitled to.

Whether you use a shoebox, digital filing, an app - the ATO even have their own - or my favourite method, a trusty spreadsheet, you need to find a way to track your tax deductions that works for you.

If you don’t have a good system in place, when it comes to doing your tax return you end up scrambling trying to find things, which means that it can take longer to get your return lodged, and refund received, and it can also mean you run the risk of forgetting deductions.

The best approach here is one that works for you, but my personal approach is to track these expenses throughout the year so that you’re clear on your tax position at all times.

This has the added benefit of keeping you clear on how you’re placed around tax throughout the year and helping with your end of year tax planning.

Being organised throughout the year pays off. Picture: iStock

Use tax reduction strategies

To reduce your tax further, you’ll need to look beyond deductions and start exploring tax saving strategies.

The most common and most effective strategies are superannuation contributions, franked dividend share investing, debt recycling, and negative gearing.

Superannuation contributions give you an immediate tax deduction, and have the added benefit of getting money invested inside superannuation where the tax rates are lower.

It does mean your money is tied up in super, so it’s a long term play, but with everyone able to make deductible contributions of $27,500 each year, including your employer contributions, this strategy can save serious tax dollars.

Franked dividend share investing is another solid tax saving strategy, where you buy Australian shares or ETFs that pay dividends which come with tax franking credits.

These tax credits work to reduce your overall tax bill and can boost your tax refund.

Debt recycling is one of my favourite strategies that allows homeowners to effectively convert their non-tax deductible home mortgage into tax deductible investment debt over time.

This strategy is a little complex and will take some time to execute, but it offers some serious tax savings.

Negative gearing is another strategy that can save a significant amount of tax, and involves borrowing money to invest, most commonly into property.

Under the ATO’s rules, any time you’re borrowing money for investment purposes, all the costs related to the investment become tax deductible, including mortgage interest costs along with any other expenses relating to your investment, for example rates and insurance.

Any time you’re borrowing money for investment purposes, all the costs related to the investment become tax deductible. Picture: Supplied

The wrap

Tax time can be an exciting time of year, and a good tax refund can give you a head start for the year ahead.

This is something useful at any time, but in today’s cost of living crisis it’s even more valuable.

The tax rules can be complicated and a little confusing, but the reality is that they aren’t going anywhere.

If you want to make the most out of the money you have today and use the rules to your advantage, you need to build your tax knowledge and skills to make your tax planning easier today, and into the years ahead.

Ben Nash is a personal finance and investing expert commentator, financial adviser and founder of Pivot Wealth www.pivotwealth.com.au. You can follow more of Ben’s free content on Instagram | Facebook | Podcast.

Ben is also the Author of ‘Replace your salary by Investing’ and Get Unstuck, and runs regular free online money education events, you can check out all the details and book your place here.

Disclaimer: The information contained in this article is general in nature and does not take into account your personal objectives, financial situation or needs.

Therefore, you should consider whether the information is appropriate to your circumstances before acting on it, and where appropriate, seek professional advice from a finance professional.