Tax mistake five million Aussies make

It’s a common tax return mistake that too many Australians make – and it could be costing them thousands.

Most people pay more tax than they need to because they make one common mistake when lodging their tax return. And it’s a simple one.

With EOFY just around the corner, now is the time to get your ducks in a row so you get the maximum amount of money back in your tax return. But the unfortunate reality is that millions of Aussies will get less tax back than they should because they’re making this one mistake.

The tax rules can be complicated and more than a little bit confusing, and if you’re not on top of your tax and how to use the rules to your full advantage you’ll pay more tax than you have to. Tax is important but in my opinion you shouldn’t pay more than your fair share. And every dollar of tax you save is an extra dollar you can save or invest to get ahead, or just spend on your lifestyle today – something particularly important in today’s cost of living crisis.

The reality is that most people miss out on deductions, simply because they don’t keep good records. Research from Officeworks has found that 35 per cent of Australians (over 5.3 million people) simply ‘forget’ about tax deductible expenses, don’t claim them, and so don’t get the money back they should.

You should make sure you only pay your fair share of tax. Picture: iStock

If you don’t track your tax deductions well throughout the year, when it comes to tax time you’ll be scrambling to pull everything together, and more than likely you’ll miss out on deductions. Or potentially worse, you push through deductions without the records, leaving yourself open to getting in hot water with the ATO.

The good news is that this mistake is an easy one to avoid with the right approach. My top three tips for tracking your tax effectively and getting the most back at tax time.

Systemise

A good system for tracking and managing your tax will allow you to stay on top of your tax throughout the year and make your work so much easier at tax time. When you have a good system, you’ll have all the information you need at hand, then once the financial year has finished you’ll be able to quickly and easily email the information to your accountant or input it into your tax return yourself.

This will make sure nothing is missed, and will also help you get your tax return lodged sooner so you get the money back in your bank account faster. There are a lot of different methods you can use; spreadsheets, apps, or even the traditional ‘shoebox’ approach.

Some organisation to manage tax throughout the year will pay off at tax time. Picture: iStock

There’s no ‘right way’, but essentially you have two objectives when it comes to keeping your tax records. Firstly, you need to have everything organised in one place so that when you do your tax return it’s easy to put in your tax claim. The second element is that you should be keeping a longer term record of your tax deductions and returns in case you’re audited in the future.

Technology is making things easier with tax, and every year there are a heap of new apps you can use to track and manage your tax. If you find an app you like that works for you, great. Or, if you’re old school and want to do hard copies in a shoebox or folder, go for it. The important thing here is that you’re making it easy to do your return and have a clear audit trail.

Check in

Here you want to create a ritual around reviewing your tax deductions, keeping you across your tax position and making sure you have all your tax information together. This will help make sure nothing is missed, and will keep you across your tax position throughout the year – making it easier to do your tax planning before the end of the financial year.

Full review before EOFY

If you wait until after the financial year has finished, it can be difficult or even impossible to make changes that will have any meaningful impact on your tax return. As such, it’s important that before the financial year is finished you review your tax return details and strategy.

Ideally at least a few months before the financial year officially ends, you should review your taxable income, your tax deductions from throughout the year, and start to get clear on what your tax return is likely to look like.

Work out if you need to make essential tax deductible purchases before EOFY. Picture: iStock

From there, you should consider your EOFY strategy to maximise your position and get set for a better outcome when you do your tax return. Consider bringing forward any upcoming tax deductible expenses and whether to implement any tax saving strategies like super contributions. Or, if you’re already doing everything you can or should be doing, you can get your information organised so you can quickly get your return lodged, and quickly get your tax back, once the financial year wraps up.

The wrap

Saving tax is my favourite way to get ahead faster, because it’s one of the only ways you can get more money without making any extra sacrifices. Every dollar saved can be put to work saving or investing for the future, or giving you some extra money to enjoy today.

The tax rules can be complicated and confusing, and staying on top of your tax can be tricky – but without an effective approach you’ll be leaving money on the table. Know that your approach to tax doesn’t need to be perfect from day one, it will evolve over time. The important thing is that you have a starting point you can build from. From there, all you need to do is to maintain your focus and level up your approach over time. Simple, not easy – but worth it.

Ben Nash is a personal finance and investing expert commentator, financial adviser and founder of Pivot Wealth. Follow Ben 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.