Tax season can be a stressful time for many, but filing your tax return accurately and on time is crucial to avoid unnecessary delays, penalties, or financial losses. Whether you’re an individual or a small business owner, a mistake-free tax return not only guarantees compliance but also maximises your potential tax refund.
Unfortunately, even the most diligent taxpayers can fall into common pitfalls due to oversight, lack of preparation, or misunderstanding of tax rules. This blog will explore these common mistakes and provide practical advice to help you navigate the tax filing process with confidence.
Why Accuracy in Tax Returns Matters
Filing an accurate tax return goes beyond ticking a box on your financial to-do list. Errors in your tax return can result in audits, delayed refunds, or penalties imposed by the Australian Tax Office (ATO). On the other hand, getting it right ensures you take full advantage of any deductions or offsets you’re entitled to, saving you money.
The good news? Most of these mistakes are preventable with the right knowledge and preparation. Let’s explore some of the most common errors and how to avoid them.
1: Providing Incorrect Personal Details
One of the simplest yet most common errors on a tax return is providing incorrect personal information, such as your name, Tax File Number (TFN), bank account information, or address.
Incorrect or outdated information can significantly delay your tax return processing or even lead to outright rejection. These errors typically arise when taxpayers neglect to update their details following major life events like marriage, relocation, or name changes.
To avoid this, take the time to double-check your personal information before submission. Make sure the details you provide match those on your official records, including your TFN and banking details for tax refund.
2: Failing to Declare All Income
Underreporting income is one of the most significant mistakes you can make on your tax return. Many people mistakenly believe they only need to report their primary salary.
However, the ATO requires you to declare all sources of income, including:
- Rental income
- Dividends and investment earnings
- Foreign Income
- Freelance or gig economy earnings
Failing to disclose these income streams can result in audits and penalties. Remember, the ATO has access to third-party data from banks, employers, and other institutions, making it easy for them to identify discrepancies.
To stay compliant, review all your financial statements and include every income source, no matter how minor. If you’re unsure about what counts as taxable income, consult a tax professional for clarity.
3: Overstating or Incorrectly Claiming Deductions
Claiming deductions can significantly reduce your taxable income, but they must be legitimate and substantiated properly. However, many taxpayers overstate their deductions or claim items they’re not entitled to.
For example, claiming work-related travel expenses without maintaining a proper logbook or receipts is a common mistake. Similarly, claiming deductions for personal expenses that aren’t directly related to earning income can attract ATO scrutiny.
To avoid these pitfalls:
- Keep detailed records and receipts for every deduction you claim.
- Ensure that the expenses are directly related to your job and not reimbursed by your employer.
- Contact tax experts to help you track expenses and determine eligibility for deductions.
Accurate record-keeping and a clear understanding of what’s deductible are your best defence against errors in this area.
4: Overlooking Tax Offsets and Benefits
Tax offsets can reduce the tax you owe, and many Australians are eligible for them. Yet, taxpayers frequently miss out on these benefits due to a lack of awareness.
Some commonly overlooked offsets include:
- The Low and Middle-Income Tax Offset (LMITO)
- Private health insurance rebate
- Offsets for seniors or pensioners
Missing these offsets means you could be paying more tax than necessary. To ensure you claim all applicable offsets, use the ATO’s online calculators or seek advice from a tax agent who can help identify potential savings.
5: Missing Deadlines
Filing your tax return late can result in penalties from the ATO. The standard deadline for individual tax returns in Australia is October 31st. If October 31st falls on a weekend, you have until the following business day to lodge your tax return.
Procrastination often leads to rushed submissions, which increases the likelihood of errors. To avoid this, plan ahead and gather all necessary documents early. Setting reminders or working with a professional can help you meet deadlines and reduce stress during tax season.
6: Forgetting to Include Foreign Income
If you’ve worked overseas, earned foreign investment income, or received payments in another country, you are required to declare this on your Australian tax return. Many taxpayers mistakenly assume that foreign income is exempt from Australian tax, leading to significant errors.
Failing to include foreign income can result in audits and back payments. Use the ATO’s guidelines to determine how to report foreign income accurately and check if your income falls under double taxation agreements to avoid being taxed twice.
7: Ignoring Capital Gains Tax (CGT) Obligations
Capital gains tax (CGT) applies when you sell assets like property or shares. Some taxpayers forget to report these transactions on their tax return, especially if they occurred earlier in the financial year.
Even if you made a loss on the sale, reporting it is crucial as it could offset future gains. To ensure accuracy, keep thorough records of all asset purchases and sales, including receipts and dates.
8: Miscalculating or Overlooking GST Obligations
For business owners, mistakes related to Goods and Services Tax (GST) are common. This might include failing to register for GST when required or incorrectly claiming GST credits.
If your business has a turnover of AU$75,000 or more, you must register for GST and include GST-related information in your tax return. Mistakes here can trigger ATO scrutiny, so ensure your records are accurate and up-to-date.
9: Not Seeking Professional Advice
Tax laws can be complex, and attempting to navigate them without expert guidance often leads to mistakes. Many believe they can save money by filing their tax return independently, but errors can cost far more in the long run.
Working with a registered tax agent can help you:
- Maximise your deductions and offsets.
- Ensure compliance with ATO requirements.
- Save time and reduce stress.
Tax professionals stay updated on the latest tax regulations and can tailor advice to your unique circumstances, making them an invaluable resource.
Ready to file your tax return with confidence? Contact Infinity22 today for expert guidance and personalised support. Let’s ensure you get it right the first time!
