By Liz Russell
If you’re quick off the mark, you’ll have already filed your income tax return for 2015 and your bank balance is looking a little healthier.
In a better world, this would mean you’re off the hook and don’t have to think about your tax affairs for the next 12 months, freeing you up to focus on the income-generating side of your writing business. However, the reality is that you’ll still need to make a little effort throughout the year to ensure you get the best result come tax time.
At the very least, you’ll benefit from some advance planning in the earlier months of this financial year to get the right processes in place.
Here are five things writers can do this financial year to increase the chances of getting a larger refund from next year’s tax return.
Sweat the small stuff
Get receipts for absolutely everything that could be related to your business or work. Even if you’re not sure if the purchase will qualify as a tax deduction, keep the receipt anyway and let your accountant be the judge. That’s what they’re paid to do.
Little things like train tickets and magazines may not seem like worth saving the receipt for, but it all adds up, and over the space of a year this could amount to a tax deduction of several hundred dollars.
Some of the tax deductions that are available to writers include:
- The work-related portion of home office expenses such as electricity, Internet connection, and a computer
- The cost of journals or subscriptions specifically related to your work as a writer
- Paid studies that specifically helped you maintain or improve your writing skills or knowledge, or are likely to result in an increase of income from writing
Note that deductions like self education are valid if they are directly related to your income-earning activity at the time of your studies. So, for example, writing courses undertaken before you started to make a living from writing are not tax deductible. If writing is a supplemental income, different to your main occupation, then the way you claim deductions on your return will be different to claiming under your main occupation; get help from a tax agent and make sure it’s done right to maximise your refund and avoid “ATO audit triggers”.
Track your phone calls
One of the things you might not realise you can claim a deduction for is work-related calls on your personal mobile phone bill. There’s no well-established method for calculating this like there is for car deductions, but using a typical month as representative for the entire year is a method that should hold up to the ATO’s scrutiny.
To do this, use the bill for that month and count the total number of calls you made (both work and personal). Then, count the number of calls that were work-related, and divide the number of work calls by the total number of calls and multiply it by 100 to get the percentage of work calls for that month. Calculate the dollar value of that percentage (i.e. if you found that 40% of your monthly phone bill consists of work-related calls, and the total bill was $50, the dollar value would be $20). The final step is multiplying that dollar value by 12 to represent the entire year.
Keep better track of your receipts
Those small bits of paper may work well as bookmarks and chewing gum wrappers, but at the end of the day you’re throwing away money that you could otherwise put towards your tax refund.
Having a proper system in place to collect all of your receipts will ensure you don’t lose or misplace potential tax deductions. But simply filing the receipts away into a manila folder or shoebox isn’t enough. The standard thermal receipt fades over time, which means that by the time you get around to tallying everything up for your tax return, you may not be able to read any of the details on your receipts. A better option is creating a backup of each receipt by either scanning them to your computer or using a smartphone app like the Etax Mobile App to snap and save photos of your receipts.
Upgrade your bookkeeping system
If you’re still using a spreadsheet and a shoebox – or worse, nothing at all – it’s about time you upgraded to a proper system. There are plenty of apps and services available that enable you to record your incoming and outgoing expenses, as well as keep track of a regular budget.
One home-grown app that simplifies the process of recording and categorising your expenses – with a view to making it easier come tax time to add up all of your incomings and deductible expenses – is TrackmySPEND, a free app developed by the Australian Securities and Investments Commission. For those who are self-employed, there are also bookkeeping and accounting software from the likes of Xero and MYOB.
The rules for claiming car deductions have changed in 2016. There are now only two methods you can use to calculate car deductions (down from four), consisting of the cents/km and logbook methods. With the cents/km method dropping to a max of 66 cents, this means that those who use their car a lot for business are best off using the logbook method.
The logbook method requires that you keep a logbook for three consecutive months, consistently.
Once you’ve completed your 12-week logbook, you’ll be able to calculate your car’s business use percentage. This is done by adding up the kilometres for all business trips to create a business use subtotal, dividing that business use subtotal by your total kilometres, and multiplying that by 100.
For example, if you travelled 4,000 kilometres in that 12-week period and 1,200 kilometres were for work purposes, the calculation would be:
1,200 / 4,000 x 100 = 30
In this example, your car’s business use percentage would be 30%, meaning you can claim 30% of your vehicle expenses in the financial year. This is where keeping track of receipts comes in, and it can really save you some money.
It may seem like a lot of work, but if it’s done right, you might boost your tax refund plus you should be safe if the ATO investigates your claim. The best part is that if your car use is consistent—even if you change cars—you can use that same three-month logbook to calculate your car deductions for the next five years.
This article is of general nature only. You are advised to consult a qualified tax agent to get advice relevant to your own situation.
Liz Russell is a senior tax agent with etax.com.au
Etax.com.au is Australia’s number one online tax return service. Specialising in online taxes since 1998, etax.com.au enables most individuals to complete their tax return in under 15 minutes. Each tax return is checked twice by qualified accountants for accuracy and extra deductions prior to lodgment, offering a higher level of support and expertise than at most tax agent offices plus the time-saving convenience of a 100% online service.