Ways To Make The Most Of Your Tax Returns

Australia has one of the highest personal tax rates in the world. In addition, the amount of tax paid is increasing every year. Thus in this blog, we will tell you ways to make the most of your tax returns. Taxes are important at some level but no one wants to pay more than they have to. This is why we will teach you ways to make the most of your tax returns. That is to say, the more tax savings you can find, the more money you have.

Below are some things you should be thinking about to get the most from your tax refund (legally). The ways to make the most of your tax returns are as follows:

• Do Your Tax Early

If you are getting your tax back, it makes sense to get the money into your bank account as soon as possible and start putting the money to work. That is to say, do your tax early, get your front foot with your financial year and wrap it up by blocking out some time in your calendar to pull together your tax information and estimate your tax returns.

But if you end up with a potential tax bill, don’t stress. You’ve got plenty of time to get a second opinion before you lodge your return and plan for when your tax is due if needed. Be aware you can prepare a draft tax return and hold off on lodging until just before the tax office cut-off.

• Maximise Your (Legal) Deductions

Tax office websites should have a load of helpful information on what you can and cannot claim in your tax return. During these COVID times, almost everyone has been working at home and most people have more potential deductions that they can claim for the home office.

The key is to make sure you have got good records to back up your claim. As a result, one should start putting together a digital shoebox for their tax documents. If like most people, you haven’t been on top of your record-keeping for the last financial year, take the lesson and start collecting your records now for the current financial year.

• Start Planning For Next Year

Most people think the best time to do their tax planning is once the financial year is finished but this can lead to missed opportunities. You should start a list now of the deductions you expect in the current financial year, then check in on it regularly so you don’t forget to keep anything that can put more dollars into your tax refund.

• Ditch Your Debt

Trying to get ahead while trying to get on top of personal debt is like working with a leaky bucket. That is to say, you take two steps forward and one step back. If you get a chunk of cash back in your tax return and have personal debt, think about using your refund to accelerate your debt reduction plan.

This will not only free up more of your regular savings to save, invest or increase your lifestyle spending but also set you up for success in the new financial year.

• Build Your Emergency Fund

Recent studies have shown that over sixty per cent of Australians don’t have enough savings in their emergency fund. If you don’t have a solid war chest to fall back on. A chunky tax return can be a good opportunity to kick start your emergency fund, allowing you to move on to your next step to get ahead.

• Start A Regular Investment Plan

The power of compound interest is a beautiful thing, and the strongest growth that one can get from any of their investments is during the few years when they hold them. That is to say, that starting a few years sooner will amplify your results. If you are new to investing, think about how you can use micro-investing apps to get started with even the smallest amount and make your first step an easier one.

• Invest In Yourself

For a younger person, their earning potential is probably their biggest asset. Whether it is learning a new skill, taking further formal study or starting a side hustle, increasing your income will improve your savings potential and help you get ahead faster.

Think through what you could do to upskill yourself and what it might mean for your income. According to ATO guidelines, investing in formal study and training is generally deductible so spending on your education has the extra benefit of increasing your deductions in this financial year and will give you a bigger tax refund.

• Treat Yourself

Being good with money isn’t just about putting every spare cent away for the future. Carving out some of your tax refunds to spend on yourself can be a good reward for your hard work and give you more motivation to keep on a solid upward trajectory. The key here is balance so think about where you are at now and the benefit of the other things you could do with the money so you don’t have any regrets about spending.

• The Wrap

Your tax refund can be a tool you can leverage to set up this financial year for success but only if you are smart with how you use it. Understand your options and their impact on your other money plans, then choose the path that gives you the best.

However, keep in mind that now is the time to start planning for what has already been, get on the front foot for the year to come and your future self will thank you for it. Now you know the ways to make the most of your tax returns.

What Are Tax Returns?

Now that you know the ways to make the most of your tax returns, let us circle back and cover the basics such as what are tax returns. A tax return is a form filed with a tax authority that reports income, expenses, and other related tax information. They allow taxpayers to calculate their liability, schedule tax payments, or request refunds for the overpayment of taxes. In addition, in most countries, tax returns must be filed annually for an individual or business with reportable income, including wages, interest, dividends, capital gains, or other profits.

The Australian Fiscal year begins on 1st July and ends on 30th June of the next year while the Indian Fiscal year begins on 1st April and ends on 31st March of the next year. Australian individuals can file their returns online with the ATO’s myTax software, by ordering a printing copy of the tax return form, or with the assistance of a tax agent. Extensions of the deadline for lodging a tax return are automatically available to those individuals using a Registered Tax Agent operating on an extended lodgement system, and extensions can be made available under some circumstances. In Australia, individuals and taxpaying entities with taxable income might need to lodge different returns with the ATO in respect of various forms of taxation.

The Sections Of A Tax Return

There are surely more ways to make the most of your tax returns but let us learn more about tax returns. To sum up, there are three major sections in tax returns where you can report your income, and determine deductions and tax credits for which you are eligible. Let us learn about the sections in more detail:

• Income

This section of a tax return lists all sources of income. The most common method of reporting is a W-2 form. Wages, dividends, self-employment income, royalties and, in many countries, capital gains must also be reported.

• Deductions

That is to say, deductions decrease tax liability. Tax deductions vary considerably among jurisdictions. That is to say, typical examples include contributions to retirement savings plans, alimony paid, and interest deductions on some loans. For businesses, most expenses directly related to business operations are deductible. Taxpayers may itemize deductions or use the standard deduction for their filing status. Above all, once the subtraction of all deductions is complete, the taxpayer can determine their tax rate on their AGI.

• Tax Credits

To sum up, they are amounts that offset tax liabilities or the taxes owed. Like deductions, these vary widely among jurisdictions. However, they are often credits attributed to the care of dependent children and seniors, pensions, education, and many more.

After reporting income, deductions, and credits, the end of the return identifies the amount the taxpayer owes in taxes or the amount of tax overpayment. Overpaid taxes may be refunded or rolled into the next tax year. Taxpayers may remit payment as a single sum or schedule tax payments on a periodic basis. Similarly, most self-employed individuals may make advance payments every quarter to reduce their tax burden.