7 deadly tax sins that will haunt you
Filling out your tax returns is a painful, confusing and a sometimes boring task – but a necessary one. However, despite the fact it happens every year many of us seem to make common mistakes that set up us for tax hell.
According to a leading tax expert, Adrian Raftery, people are setting themselves up for their own pitfalls by not declaring income, failing to lodge tax returns correctly or not at all.
The author of 101 Ways to Save Money on your Tax – Legally! said that by taking shortcuts and being lazy, not keeping receipts and being dishonest with income earned top the list of the worst offences. By committing these sins, taxpayers were depriving themselves of legally legitimate entitlements.
“Some people mistakenly think if they do not claim the full amount they’re entitled to, then they will stay under the ATO’s radar and avoid being audited,” he said.
“But if you’re legitimately entitled to claim the full amount then they simply should.”
He added that many believed it was faster and easier to file their tax returns themselves – but a qualified accountant could pick up a lot more than the average person.
The 7 deadly tax sins:
1. Laziness
Failing to properly document things like out of pocket medical expenses and not keeping spreadsheets for your expenses will cost you on a tax return that you are legally entitled to.
2. Dishonesty
If you don’t declare foreign income, additional payments and shares, the ATO will notice. Mr Raftery said they are data-matching over a billion transactions and were looking at 600,000 taxpayers.
“The process is quite lucrative as almost $1.2bn in tax revenue was generated last year due to an audit investigation by the ATO,” he said.
3. Greed
Over-claiming on things such as rental properties and negative gearing is just asking for trouble. This could include claiming too much for repairs, interest on loans, borrowing costs and depreciation.
“The last thing you need is a knock on the door from the taxman because you claimed too much,” he said.
4. Arrogance
“Remember an accountant is a professional and acts in the same way as a mechanic in a way,” Mr Raftery said. “Anyone can change a tyre but a mechanic can recognise potential problems and fix minor errors which can end up costing you more down the track.”
5. Stupidity
Mathematical errors could result in big mistakes and earn you a massive tax bill later.
“A wrong number here or a bad calculation there may cost you thousands,” Mr Raftery said. “So if you do your return yourself then make sure you measure twice and avoid any unnecessary headaches.”
6. Forgetfulness
Not lodging a return or forgetting to file one is another means of costing you. Mr Raftery warns that people were losing thousands by not lodging their returns. He said he had one client who had 33 years worth of returns and ended up getting a $70,000 refund.
7. Carelessness
Always check and double check that you have all the correct information and documents. These should be maintained throughout the year, and not just the night before your tax return is due.
“There are a myriad of deductions you might be missing out on,” he said. “But if you have more than $300 worth of total deductions then you must have documentary evidence of that full amount.”
Related links:
5 expensive (but avoidable) financial mistakes
Great mobile apps to help you budget