With the 2021 Financial Year coming to an end in 3 months it is never too late to get started on compiling your work-related expenses. You would like to claim for your Tax Agent at R T Accounting & Taxation Services to review and lodge your tax return. Here is the list of potential tax deductions you should be keeping an eye on whilst compiling your list.
How do Tax Deductions Work?
First, it is important to understand the role tax deductions play in reducing your taxable income. When lodging a tax return, you can claim deductions for expenses incurred in earning your assessable income. These deductions are known as “work related deductions”.
To be able to claim these work-related deductions you will need the following:
- A record to prove the expense was paid.
- Proof that you have spent the money yourself.
- You have not been reimbursed this expense by your employer.
- Correlation between this expense and the role you are in.
It is also understandable that sometimes you can jumble up expenses between private and work. So it is important to apportion the deduction you would like to claim for the work-related part of the cost.
Different Types of Tax Deductions You Can Claim
Work-Related Car & Travel Expenses
We are starting this off with potentially the most intricate part of work-related expenses, the work-related car and travel expenses. The key point to note is that you must keep records as this will make it easier for both yourself and your tax agent at R T Accounting & Taxation Services.
If you use your car for work, you can claim the work-related travel expenses for the portion you use your car for to earn your assessable income. There are two methods that we can use to calculate this amount deductible:
- Cents per kilometre method, currently at 68 cents per kilometre travelled, and capped at 5000kms or $3400. We have found most clients prefer to use this method. As the dollar amount encompasses all work-related car expenses without the need to keep a detailed logbook. Also, unless you are in a role that requires you to be on the road every day of the week, most taxpayers will not travel 5000km in a Financial Year for business purposes.
- Logbook method, where you record every expense incurred with your car for 3 months and calculate a business use percentage from there. This option is more favourable for tradespeople and salespeople as they travel for more than 5000km a year, for work purposes. This method is more complicated so do not be afraid to come to visit us in the Eastern Suburbs to see which method is best for you.
Travel between work and home daily is not tax deductible as this is still considered private travel.
Work Related Clothing and Laundry Expenses
Another work-related expense most popular with tradespeople. If your employer has a dress policy that is not readily available to you outside your workplace then you can potentially be in line for tax deductions.
Clothing and protective clothing can only be claimed if you require it for your occupation. For example, a generic suit pant combo is not claimable as a work-related expense if your employer’s logo is not on the suit or if wearing a suit does not fit inside your employer’s uniform policy (often listed in your employment contract). You can also claim clothing and footwear you use to protect yourself from on-the-job injury or illness. For example, steel-capped boots for tradesmen or sun cream for teachers on playground duty.
Work from Home Deductions
With many roles still not returning to an office, Work from Home Deductions will play an important role in getting yourself a hefty refund come tax time. If you work from home, some portion of the home office expenses is claimable. In a perfect world, you should have a separate study room in which you carry out your work-related activities. However, if you are using the living room or your bedroom to work, you can only claim expenses for the hours you had exclusive use of the area for work.
Like work-related car and travel expenses, keeping a clean and accurate record of your home office expenses is crucial. If you are not given a work computer to work from home then the cost of the computer is deductible along with any associated electrical charges. This is why it is easier to calculate if you work from a separate study room.
Beware that equipment you would like to purchase that costs more than $300 will need to be depreciated over the asset’s useless life.
Mobile Phone Use
Communication has been more vital with the workforce working from home, and so work-related phone usage has been increasing. The good news is that, if you use your own phone for work purposes, you are entitled to claim tax deductions. If you paid for it and can prove that you have spent the money yourself and were not reimbursed for it by your employer. If you use a single phone for work and private use, then you will need to work out which percentage was used for work-related purposes only.
A simple way to calculate this would be to keep a spreadsheet over a 4-week period. And allocate your calls as work and private. You can then round this up to a full-year expense.
Memberships, Subscriptions & Union Fees
Do you trade shares on the ASX? And purchase a subscription to the Australian Financial Review to keep updated on any news and movements in the share market? This subscription cost would be tax deductible as it is helping you gain your assessable income.
If you work in retail, those trade union fees are deducted from your pay. Each pay cycle is also claimable in your tax return. These union fees are often reported by your employer to the ATO, and we can pick this up on our system.
Gifts & Donations
Gifts & Donations can be claimed if the organisation you are donating to is a deductible gift recipient. A receipt of proof of donation must also be kept claiming the deduction.
Self-education expenses can be claimed if your study is directly linked to your work. The course you undertake must lead to a formal qualification that meets the below criteria:
- the course must maintain/improve skills and knowledge required in your current job.
- result in or is likely to, an increase in your income.
You cannot claim self-education expenses that does not have a significant enough connection to your current employment. You can claim the following expenses in relation to your self-education:
- accommodation and meals (if away from home overnight)
- course or tuition fees
- decline in value for depreciating assets (cost exceeds $300)
- purchase of equipment or technical instruments costing $300 or less
- bus/train fares
- home office running costs.
- internet usage (excluding connection fees)
- parking fees (only for work-related claims)
- phone calls
- student union fees
- student services and amenities fees
- trade, professional, or academic journals
- travel to-and-from place of education (only for work-related claims)
If an expense is partly for your self-education and partly for other purposes, you can only claim the amount that relates to your self-education as a deduction.
Cost of Managing Tax Affairs
If in the previous year you were wise enough to come see us or any other tax agent to lodge your return, you can claim the deduction for the fees the tax agent charged you along with any associated travel costs in getting to and from your tax agent.
Finally, it is important to prove your work-related purchases, via receipts and corresponding bank statements. As well as prove that it is an item or service used for work-related purposes. If in doubt, do not hesitate to get in touch with the tax specialists in the Eastern Suburbs at R T Accounting & Taxation Services and we will be able to help you out.