Understanding how to make the most of tax deductions is vital for reducing your tax liability. As we approach the 2025 tax season, knowing how to optimise deductions can save you significant amounts.
Below are nine essential tips to help you navigate your tax obligations effectively this year.
1. Be A Compliant Taxpayer
Staying compliant with the Australian Taxation Office (ATO) is essential to avoid penalties. The ATO imposes substantial fines for late lodgements, so ensure you file your income tax return and activity statements on time. If you require extra time to organise your documents or reconcile your bookkeeping, request an extension in advance.
Remember, the self-assessment system allows for corrections up to two years for tax returns and four years for activity statements, so it’s better to lodge on time and amend if needed.
2. Plan Your Tax Position Throughout The Year
Avoid surprises during tax time by planning your tax position well in advance. Many taxpayers are unaware that untaxed income, such as interest from savings or income from a second job, will be assessed and taxed.
To prevent unexpected liabilities, consult your tax advisor before the financial year ends. By doing this in April or May, you’ll have a clear picture of your tax position and can make any necessary adjustments before lodgement.
3. Stay Involved In Your Tax Affairs
While tax advisors provide valuable support, taking personal responsibility for your tax affairs is crucial. Familiarise yourself with your bookkeeping software if you run a business, and ensure you understand employment obligations under Fair Work laws if you have staff. This proactive approach ensures compliance and better management of your tax obligations.
4. New Rules For ATO Interest Charges
A significant policy change takes effect from 1 July 2025: ATO interest charges will no longer be tax-deductible. This reform aims to encourage taxpayers to independently finance their tax liabilities. Business operators and investors should maintain adequate reserves for tax payments, as ATO payment plans should only be considered as a last resort.
5. Maximise Superannuation Contributions
Contributions to superannuation redistributes tax payment and builds retirement savings. A contributor with a super balance of less than $500,000 can put in more than their concessional cap that is $30,000 under a generous provision. Because of this timing of contributions, the compounding return can greatly secure or even ease financial repression during retirement.
6. Avoid Sole Reliance On Online Information
The Australian tax system is complex and constantly changing. Information obtained from websites, including the ATO Community forums, could lead to mistakes. Tax queries often contain specific details that must be combed through, including superannuation obligations, fringe benefits tax, and so on. The right advice for any tax issues specific to you is ensured by consulting with a qualified tax accountant.
7. Consider The Implications Of Declaring Your Spouse
Declaring your spouse on your tax return has pros and cons. It’s mandatory if you have a spouse, but doing so can affect your tax thresholds.
For instance, combining incomes may result in higher Medicare levy surcharges or reduced private health insurance rebates. On the other hand, declaring your spouse may allow for additional deductions through shared expenses.
8. Address Cryptocurrency Holdings
Cryptocurrencies may trigger huge tax consequences when transacted. Converting or cashing out of one is, therefore, a taxable event; donation to registered charities would, on the other hand, allow one to dramatically offset taxes and ease the tax treatment. Careful record of all cryptocurrency transactions must be kept, for taxation purposes by the ATO.
9. Understand Car Expense Claims
Properly collecting and claiming for automobile expenses have made the difference in a noticeable way when it comes to your tax claim.
There are two methods mainly employed in this regard;
- Actual Cost Method: This method entails maintaining a logbook for it to be valid, and it usually results in higher deductions. However, if you purchase a car toward the end of the year, you may not qualify for this method.
- Cents-per-kilometre Method: This is much simpler but might give you lesser deductions.
For commercial vehicles, like vans and utes, there is no need to maintain a logbook for actual expense claims. Depending on your situation, choose a method that would help you report accurately.
Additional Tips For Better Tax Management
Leverage Offsets And Rebates
Tax offsets and rebates can significantly reduce the tax you owe. Ensure you’re aware of any offsets you may qualify for, such as the Low and Middle Income Tax Offset (LMITO). This can be particularly beneficial for individuals earning within certain thresholds.
Keep Thorough Records
Accurate and organised record-keeping is essential for claiming deductions. Keep invoices, receipts, and relevant documents handy to support your claims. Digital tools and software can simplify this process, ensuring you’re audit-ready.
Stay Updated With Tax Law Changes
Tax laws and policies are constantly evolving. Regularly update yourself on changes that may affect your deductions or obligations. Partnering with a knowledgeable tax advisor can ensure you stay compliant and benefit from any new opportunities.
Need Help With Your Taxes?
Don’t stress over tax deductions—KPG Taxation is here to help! Our team provides simple, clear advice to make your tax season easy and hassle-free. Get in touch today and let us help you save more in 2025!