Top 8 Tax Traps to Watch Out For

For many of us, tax time is an exciting chance to get some money back and maybe splurge on something we’ve been wanting all year. But if you fall into one of these tax traps and get caught, your financial relief can rapidly spiral into money troubles.

Here are 8 examples of mistakes and things you cannot claim money for on your tax return. Take note and take care to avoid them.

#1: Double Dipping

You cannot claim expenses that your employer has reimbursed you for. Whether you’ve travelled for interstate meetings or picked up some extra stationery for the office, if your employer paid you back, it shouldn’t appear on your tax return.

#2: Claiming Rent or Mortgage

If you’re one of the many people who have been working at home a lot in 2020, you might think you can claim a portion of your rent or mortgage repayments. Unfortunately, this isn’t the case. Occupancy expenses are not claimable for employees.

#3: Not Making Any Deduction Claims

The biggest mistake you can make with your tax return is to not claim any deductions at all. With few exceptions, everyone accumulates at least some claimable expenses throughout the financial year. Don’t miss out by neglecting this section of your tax return.

#4: Travelling to and from Work

This one can be a little confusing at first. If your work includes travelling (e.g. between offices or to clients), you can usually claim a portion of your travel expenses. However, your transport directly between home and work is not eligible to be claimed.

#5: Proof of Expenses

If your tax return includes expense claims totalling over $300, you need to make sure you have written evidence to verify your expenses. Keep this proof for at least 5 years.

#6: Work Expenses That Aren’t Really Work Expenses

Any work expenses you claim need to be exactly that – related to your work. A gaming laptop shouldn’t appear on your tax return, for example, unless you happen to also use it for working at home. Similarly, a portable speaker wouldn’t be a claimable expense unless you’ve bought it to play music in the office.

When you’re considering claiming an expense, think about whether you could justify to an authority figure that it’s a work-related expense. If you’re unsure, it’s usually best to lean towards caution – or ask your accountant.

#7: Rushing Your Return

You might think getting your tax return in ASAP and completing it quickly is a good idea. But this can lead to mistakes that end up costing you in the end. Take your time to ensure you don’t miss any deductions or miscalculate any of your expenses. Also, make sure your bank details are up to date.

#8: “My Tax Agent Is Responsible”

Whether you prepare your own return or go through an agent, you are ultimately responsible for ensuring all the information in your claim is correct and accurate. If you make false claims – intentional or accidental – you’re the one who will face the consequences. So, take your time, calculate your expenses carefully, and always report honestly.

Tax time can be a great relief, but not if you fall into a tax trap. Keep these mistakes in mind while preparing your return to ensure you don’t get caught out.

Disclaimer: Please be aware that Cigno Loans’ articles do not replace advice from an accountant or financial advisor. All information provided is intended to be used as a guide only, as it does not take into account your personal financial situation or needs. If you require assistance, it is recommended that you consult a licensed financial or tax advisor.