Tax deductions:
- A tax deduction is a way to reduce the amount of income that is subject to tax. It is an expense that can be deducted from the income to lower the tax liability.
- Tax deductions can include Work related expense, Charitable donations and mortgage expenses.
- It can either be itemized or standard. Standard deductions are fixed amounts which will be based on the filing status and other factors. It assumes that everyone will be having a certain amount of expense to be considered normal expenses.
- On the contrary, Itemized deductions are actual expenses. One must have the receipts and proof of all the eligible expenses throughout the year.
Benefits of tax deductions:
- Tax deductions will help us to reduce the amount from the total taxable income and lower the tax by reducing the total income subject to tax.
- Reduced taxable income will help us to save and invest.
- It reduces the income subject to tax so that we can claim a deduction from the amounts spent on charitable contributions and medical expenses.
Tips to Identify claimable tax deductions:
- To identify the claimable expenses, e should consider the following 3 tips:
-> Was the expense directly related to your work or income-generating activity?
-> Did you spend the money, and you weren’t reimbursed by your employer?
-> Do you have an official record of the expense – e.g. receipt or bank statement?
Tax deductions that can be claimed at tax time:
There are 8 tax deductions which we can claim at the time of financials. They are,
- Home office expenses
- Vehicle & Travel expenses
- Clothing, Laundry and dry cleaning
- Education
- Other work-related expenses
- Industry related expenses
- Gifts & donations
- Investment income
Claimable Tax deductions:
1. Home office Expenses:
- Home office expenses are the expenses which are incurred by a business conducted at home.
- For calculating the home office expenses and deductions, one needs to sum up all the costs incurred at home and deduct the amount dedicated to the business.
- The home office expenses to be calculated are as follows.
-> Phone and internet expenses
-> Stationery and printing expenses
-> Home office equipment like computer, furniture’s etc
- The home office expenses do not include Mortgage expenses, rent and rates. The costs of general household items should not be included in the home office expenses.
2. Vehicle and travel expenses:
- All the travelling expenses cannot be claimed like the travel to workplace or some work-related travels.
- The claimable travel expenses are.
-> When a person is required to travel to multiple locations or workplaces related to work
-> When the car is used for the work-related purposes alone
-> Accommodation expenses related to work-related travels.
3. Clothing, Laundry and dry-cleaning:
- Clothing’s which were brought for the purpose of work like work uniforms, safety gears are claimable.
- One cannot claim the tax which is for conventional or non-work uniforms.
- For claiming the taxes, one should have the copy of entries and receipts.
4. Education:
- A person can claim the deduction for a self-education expense if it has a connection to earning income from employment.
- If education improves the skills, we require in employment activities are claimable.
- We can also claim the taxes on education which results in the increase of the income in employment.
5. Industry-related deductions:
- To claim the industry-related expenses one must meet the below mentioned rules.
-> The money we spent was not reimbursed.
-> The expense must directly relate to the income of employment.
-> Records like receipts and proofs should be kept.
6. Other work-related expenses:
- The stationery we use like Calculator, Printer ink, Journals are tax claimable.
- For claiming those, one should meet the below criteria:
-> The stationery should be used to perform the work duties.
-> We must incur the cost of the items.
-> The records of such expenses must be maintained. The receipt of small expenses are not maintained.
-> A bank statement or credit card statement are acceptable as proof. A written format in the journals is also acceptable for the claim.
7. Gifts and donations:
- · A person can claim the tax for a gift or donation only on the following conditions.
-> The donation must be made to deductible gift recipient (DGR). DGR is an entity which can receive tax deductible gifts (non-profit organizations).
-> The expense made must be truly for the gift or donation purpose. There should be no material benefit or advantage in return.
-> It must be money or property.
-> It must comply with the relevant gift conditions implied by the Income tax laws.
8. Investment Income:
- A person can claim the tax for account keeping fees on the accounts held for the purpose of Investment Purposes.
- They can also claim taxes on the seminars attended for the purpose of investment.
- A person can also claim the tax for the personal super contributions for complying super fund or retirement on savings account. For claiming the deductions, a person must provide the Super fund or RSA details.
Credits
