Are you wondering how to save tax in Australia in 2018? We have compiled a list of our best tax saving options that you can try out this year, showing you the various ways you can save. Read this post and learn more about legally saving tax before it's too late.
Tax Saving Options in Australia
If you’re looking for the best tips on how to save tax in Australia, the first thing to keep in mind is that you must keep all your receipts and logbooks properly filed and updated. This will be crucial to keep your thought process organised when you’re doing tax deduction claims, and it will make it easier to provide proof of your expenses to the ATO in case they ask for it.
• Know your deductions
Many people fail to claim all of their expenses, simply because they aren’t familiar with all the applicable deductions. As a general rule, any product or service that you buy which is even marginally related to your job can be at least be subject to an apportioned deduction. Make sure to keep each and every one of your purchase receipts on file, and either get a tax professional to sort through them or make sure to ask someone about the receipts you’re unsure about. In case you get the assistance of a tax professional, the fees you have to pay will also be deductible.
• Donate to charity
If you like the idea of killing two rabbits with a stone, you should consider donating to your favourite charity. Provided you get a receipt, you will be able to claim 100% of your donation as a tax return, meaning the donated amount is deducted from your taxable income – in simple terms, you will get part of your donation as tax returns. This is a popular choice in terms of tax saving options in Australia.
How To Save Income Tax On Salary
Another important area you have to consider is how to save tax on salary; anyone who earns over $18,200 will be subject to income tax, but there are some ingenious ways to save on this tax.
• Thoroughly check your receipts
If you’re a salaried employee, there are many expenses that you can draw from when claiming your tax deductions. This includes anything that you need to do your work, from travel costs and car expenses to assorted work tools and equipment (including home computers, phone and Internet bills), down to magazine subscriptions (make sure they’re somehow related to your line of work), and even clothing related expenses (including laundry expenses and clothing care).
• Be familiar with tax offsets
Tax offsets are tremendously useful for those who want to know how to save income tax on salary. There are many rebates available to bring down your tax obligations after they’ve been fully calculated: if you have dependent relatives or buy private health insurance, those expenses can be used to further bring down your tax. Rebates are also available to people with low income, pensioners and anyone who is entitled to government benefits.
How to Save Tax Legally
The art of saving tax legally revolves around careful planning. Sometimes choosing the right timing or doing the right investments will translate into sizeable tax savings.
• Choose investments over savings
Investments are arguably the best way to save tax, since you are taxed on all your savings. This means it’s often better to keep your money flowing (and hopefully turning a profit), rather than just letting it sit idle on your bank account. This doesn’t mean you should just invest all your capital looking to specifically trim away at your tax expenses; you should make sure to choose beneficial investments that will add to your bottom line. If you have significant money you’re looking to invest, it is often a good idea to get the advice of a financial planner to make sure you’re putting your money in the right baskets.
• Sell your assets judiciously
Since most of your assets are subject to CGT (capital gains tax), you have to factor in this expense when looking to sell. As a general rule, you should wait until you’ve owned an asset for a full year before selling since this will bring down CGT to half. If you’re still paying your mortgage or other loans, you want to always favor paying it off over adding cash to your savings account; this way you will avoid paying income tax on the money you use to pay off your loan or mortgage, and you’ll minimize your spendings on interest from the loaned money.
• Time your deductions wisely If you have a variable income that changes significantly from year to year, you can save good money on tax charges if you time your deductions properly. When possible, always aim to file your expenses from a profitable year in the tax claims of an adjacent year where your income is comparatively lower. Likewise, you should aim to sell your assets in the years where your income is lower since this will reduce the impact your capital gain exerts on your tax liability. This is especially true if your income levels tend to push to you different tax rates from year to year.
• Know the updated tax rates
Anyone looking to find how to save tax legally must be concerned with staying up to date on the latest marginal tax rates. Here are the income tax rates for the year of 2017/2018, five tiers have been established:
1) $0 to $18,200 – no tax
2) $18,201 to $37,000 – 19% – 19 cents for each $1 over $18,200
3) $37,001 to $87,000 – 32.5% – $3,572 plus 32.5 cents for each dollar over $37,000
4) $80,001 to $180,000 – 37% – $19,822 plus 37 cents for each dollar over $87,000
5) $180,001 and above – 45% – $54,232 plus 45 cents for each dollar over $180,000
Keeping all this information in mind will be worthy of your time and energy, as you’ll find many creative ways to minimise your tax expenses. You can find a calculator online for free to help you do the math and maximising your savings, and you should try it out now!