There is the famous case of the man who tried to claim $5000 in deductions for “secretarial duties” that were supposedly provided by his 7 year old son. Or the case of a don who claimed tens of thousands of dollars in deductions for the use of his Maserati to and from work! Tax mistakes are common and they are usually due to greed, arrogance, laziness, carelessness, forgetfulness or just plain dishonesty on the part of the tax payer.
Mistakes also occur due to a taxpayer giving a “guesstimate” of their expenses or not backing up their expense claims with records or receipts. Some over claim expenses, especially the work-related expenses that are not considered standard expenses where substantiation may be exempted.
The end result is that even the slightest tax mistake can have costly consequences and you might end up leaving a lot of money on the table in the form of tax deductions. Ultimately, the responsibility for mistakes, whether of omission or commission, lies with the tax payer, even if your taxes are being lodged by a tax agent. Those mistakes could land you in a tax hell, putting you under the fine microscopic scrutiny of the ATO tax officials and costing you thousands of dollars in penalties and more taxes.
Here are some of the most common tax lodgment mistakes that you should avoid in 2018:-
Guesstimating Your Tax Deductions
This is the number one tax lodgment mistake landing many a taxpayer in the hot soup. When making tax deduction claims, ensure that they are accurate and are backed with evidence or proof of the expenditure.
The ATO generally has a fairly foolproof system of detecting bogus claims and can easily run a comparison with what you have submitted to determine if your returns are accurate and matches the information that they already have in their database.
Counter check your claims and verify to ensure they are accurate. The slightest mistakes will get the bells ringing and could put you under increased scrutiny by the Tax Office. In 2018 , the ATO is going to focus its lenses on the work-related expenses under the “Other” category so if you are planning to file these, ensure you can prove how you have worked out those deductions.
Ensure that the documents that are relevant to your tax affairs are preserved for at least 5 years after the lodgment of your tax returns. You might need them a few years down the line should you fall under the radar of the ATO audit blitz.
Providing No Proof of Purchase
Don’t be too eager to claim tax deductions if you have no proof of purchase or a “method” demonstrating how you have worked out the deductions. Without a proof of purchase, you can only claim a maximum of $300 in work-related expenses. ATO offers substantiation exemptions for some expenses but that does not exempt you from having to demonstrate how you have worked out the deductions to arrive at a particular figure.
The ATO maxim when it comes to tax deductions claims is no proof no claim. So if you are incurring lots of work-related expenses or business expenses that you are paying out of pocket and which you are not being re-imbursed for, ensure you keep the receipts that will serve as proof of purchase. Maintain good records and keep the receipts all year round for tax purposes.
If you are unsure about particular claims that you wish to file, talk to a tax accountant Melbourne professional that will advise you accordingly on how to proceed with the claim without a proof of purchase. An accounting firm Melbourne practice can offer you expert advice that will help you make the most of the deduction claims.
Relying on Pre-filled Data by the ATO
Out of laziness, some taxpayers or tax agents will simply pre-fill income information using the ATO systems and lodge these. It is fairly easy and you can do it with the click of the button. However, ultimately, the responsibility to supply accurate tax returns rests with you as the tax payer.
Don’t assume that the ATO income data is accurate. It may not even be complete. When you are filing tax returns, always make it a point to use your own records as the source data. It is always more accurate and up to date than any other data source that is out there. If you leave out any income source that is wanted by the Tax Office, even inadvertently, you get to bear the legal burden even if the information that you have filed is ATO pre-filled data!
Making Basic Mistakes
Your tax returns can be held up because you have made some really basic tax filing mistakes. Many of these could just be inadvertent errors that could have been avoided if you or your tax agent had been keener. Some of the most common tax lodgment mistakes may involve the following:-
- A change of name and the address: – Your business name and address might have changed in the past financial year and you forgot to notify the ATO before lodging your tax returns. If you file tax returns under the new name, the ATO will be unable to match them with Tax File Number and this may result in delays.
- You forgot to provide your bank account details: Without bank account details, there will simply be no refunds since the Tax Office no longer issues cheques.
- Spelling mistakes: Did you misspell your name or business name? That simple “clerical” error might create a nightmare for the tax official that will be processing your taxes and they will probably need more time to manually match your details on file.
Not Hiring a Professional Tax Agent
Filing tax returns is a monumentally complicated and time-consuming process. That is why an estimated 74% of Australians use tax agents for their tax lodgment. If you make a mistake in filing your returns, the consequences will boomerang on you and they always come with steep costs and penalties.
The most prudent approach is to hire an accounting firm Melbourne professional that will accurately complete your tax returns once you have provided them with the required information. It is stress-free and you are safe in the knowledge that your returns are being handled by a tax expert. An experienced accountant Melbourne professional is generally savvy at spotting problematic areas and sniffing out areas where you can claim more tax deductions. Not to forget that their accountant fees are also an expense and are tax deductible!