How is a tax deduction calculated?
Many taxpayers have the misconception that tax deductions are a dollar-on-dollar benefit, which results in wrong estimates at the time of lodging their tax return, causing financial disillusion at the end of the financial year.We have created this brief guide, including some of the questions we hear all the time and some advice to make the most out your tax deductions and the tax deduction calculation process:
Tax deductions calculation and income tax brackets
All taxpayers are divided into brackets according to their annual income, for the Financial Year 2020-21 the free-of-tax threshold goes up to $18,200 for Australian Tax Resident, making taxable every dollar earned over that amount at a rate that changes depending on the corresponding income tax bracket.You can visit the ATO’s website if you wish to know more about the income tax brackets or you can use the ATO’s tax calculator, to have a better estimate at the time of lodging your tax return.
What is tax deductible?
The ATO considers as tax-deductible those expenses that were necessary to generate/ earn some income. Depending on your business, industry and work arrangements, you will be entitled to claim tax deductions from work-related expenses (including home office, education and transportation), investment expenses, tax advice fees and even donations and gifts.
Are tax deductions good?
Eligible tax deductions are a good way to recover a percentage on the expenses you had to incur, without which you would not have earn your income. However, some taxpayers can see more benefit than others, depending on their income tax bracket and eligibility.
Our advice on tax deductions
- Plan any work-related expense considering the taxation periods
- Keep evidence of any expense (invoice and proof of payment)
- Consult a tax accountant to help you with the tax planning process and to be sure your expenses are deductible
At Ample Accounting & Taxation Services we want to help you make the most out of your tax deductions. Contact us or visit us in our Bankstown office.