Tax deductions may seem complicated at first, but they’re actually pretty straightforward if you know what you’re doing. To make things easier for you, we thought it would be useful to put together a brief article about how tax deductions work. If this is something that you’re interested in learning more about, read on for a beginner’s guide to Australian tax deductions.
How Do Tax Deductions Work?
When submitting a tax return, anyone who is employed can claim deductions for any expenses they paid while working. To be able to claim deductions, the taxpayer is required to have met the following criteria
- You must have documents to prove it.
- You must spend the money yourself.
- The expenses must not have been reimbursed.
- The expenses must be work-related.
Keep in mind that if the expense you are claiming is for both work and private purposes, you can only claim a portion of the costs that were utilized for work.
What Are the Different Types of Deductions?
Business travel expenses are typically tax-deductible. You are entitled to deduct the work-related travel expenses that correspond to the business-related costs of using your car to do your job. You must be able to prove the use of your car for business travel in order to deduct any car expenses.
Do you have to wear a suit to work, or is a uniform required? Or do you need to wear clothes that bear the logo of your company? Maybe you work at a shop that sells clothes, and you need to come in wearing clothes from that shop. In any case, you have to dress according to the dress code at work, and this expectation might carry over into your interactions with the taxman when it comes time to file your taxes. If you wear clothing that is specific to your occupation, you can claim the cost of purchasing and laundering it. Otherwise, you cannot. (For example, chef’s pants.) You can claim the cost of special clothing that you wear to protect yourself from injury or illness, such as a uniform for construction workers that protects them from dust and sun. (For example, sun protection can be claimed if you work outdoors.)
If you carry out all or part of your employment activities from home, and you have a designated room set aside as a home office, then you can claim a tax deduction. Ideally, you should have a room set aside as a home office, but if you don’t have one, or if you are using a dual-purpose room (e.g. dining room), you can still claim expenses for the time that you have exclusive use of the room.
As with anything tax-related, record-keeping is critical for a home office deduction. You may be entitled to deductions for equipment used for work (e.g. computer, phone), general repairs and maintenance on your house that are work-related (e.g. electricity), and some other costs (e.g. Internet connection). Note that as a general rule, you can only claim for expenses in proportion to the area of your home that is used for work.
We hope this article proves to be useful when it comes to helping you gain a better understanding of how tax deductions work. While it may seem complicated at first, the information that we’ve outlined above should help make things more manageable. Feel free to reread this article if you need a quick refresher on tax deductions.
SMB Accounting has knowledgeable tax consultants who can help you get started with taking care of your tax refunds. We make sure that our clients use their tax refunds wisely, and we also offer other services such as accounting and business advice. Contact us today for a consultation!