You are liable to pay taxes once you are classified as an employee who is paid a monthly salary or wage by your employer. Every year a working individual is meant to file for their tax return and the expenses you deduct/ choose not to pay for after consulting your tax agent in Perth on your annual Income tax return are known as individual tax deductions.
What is a Tax Deduction?
As an employee or an employer, you can choose to claim expenses that are related to your income generated from your profession.
A tax deduction is a reduction in your annual individual tax return that reduces a person’s or organization’s tax liability. Deductions are costs incurred by a taxpayer during that particular year that can be added to or subtracted from their gross income to determine the amount of tax owed.
Understanding Tax Deduction better:
Different tax codes exist in different countries both at the federal and state levels, allowing taxpayers to exclude a wide range of costs from their taxable income earned.
The tax code guidelines are set annually by taxing authorities in both the federal and state governments. Government-set tax deductions are often used to encourage taxpayers to engage in community services such as charity activities for the benefit of the society and the welfare of the people and the country as a whole. It is seen that Taxpayers who are aware of available federal and state tax deductions save a lot of money each year by taking advantage of both tax deductions and service-oriented activities.
Standard Deduction V. Itemized Deduction
Standard deductions and itemized deductions are the two types of tax deductions that taxpayers may choose from. The standard deduction is the number of untaxed wages that can be used to lower your tax bill.
Your standard deduction is determined by your filing status, age, and whether you are disabled or claimed as ‘dependent on another person’s tax return’. Many people get a standard deduction on their federal taxes.
The size of the federal standard deduction varies each year but is determined by the reporting patterns of the taxpayer. Standard deductions are determined by state tax laws, with most states also including a standard deduction at the state level. Taxpayers can choose between taking standard deductions or itemizing deductions. Standard deductions are frequently the simplest option since there is no need to calculate the sum since it is already fixed and calculated.
- If a taxpayer wishes to itemize deductions, only the sum above the standard deduction cap is deducted.
- An itemized deduction is a cost that can be deducted from your adjusted gross income (AGI) to lower your taxable income and thereby lower your tax liability. Taxpayers who qualify for these deductions will pay less in taxes than if they took the standard deduction.
- Itemized deductions necessitate some calculations and effort on the part of the taxpayer. If you’re married and filing jointly, have multiple big expenditures such as a house, major medical expenses, and contribute to a retirement fund, itemized deductions can be advantageous.
Before you make any decision, it is important to understand what individual tax deductions you might be able to claim and to keep good records each time you encounter a work-related bill if you want to get the best possible refund and pay the least amount of tax. Vehicle expenses, work-related telephone or internet charges, work-related travel costs such as flights or trains, and even charitable donations are all eligible for tax deductions.
Common tax deduction Vs. Uncommon tax deductions
At the federal and state tax levels, taxpayers can take advantage of a variety of common and often missed tax deductions to reduce their taxable income.
- Donations to non-profit, religious, humanitarian, or governmental organizations are examples of common tax deductions.
- Sales tax on personal property transactions and annual tax on personal property, such as a car, are two uncommon tax deduction examples. Many expenditures incurred for business purposes during the year, such as networking bills, travel costs, and certain commuting costs, may be liable for itemized deductions. It’s important to remember that the amount you may deduct per year to minimize your tax liability can be limited.
- When itemizing healthcare deductions, for example, any expenditures that were not reimbursed during the tax year (but were covered for) must surpass a certain percentage of your adjusted gross income to be deductible.
What Individual tax deductions you can claim?
The following is a set of standardized individual tax deductions that you may be eligible for; some of them may come as a surprise. But keep in mind that you can only report legitimate expenditures for which you have a receipt or other evidence.
- Tax return planning is included in accounting fees.
- Fees for professional membership
- Fees Paid to the Union
- Income Security
- Educational course fees including textbooks and reading materials
- Professional libraries as well as educational magazines
- Calculators and electronic organizers
- Computer-related devices
- Computers and laptops
- Internet bills and data usage
- Small electronic devices such as tablets
- Mobile devices and other accessories
- Briefcases and carry-bags
- Safety equipment – e.g. sunscreens, hard hats, harnesses, safety glasses
- Technical instruments
- Tools for online trading
- Vehicle Expenses-e.g. fuel
- Parking Fees
- Public transportation fares
- General travel expenses, including flights, taxis, etc.
- Accommodation, stays and meals
- Desks chairs and office furnishings
- Running costs
- Protective clothing
- Uniforms (with designated company logo)
- Charity Donations
All of the above expenses aren’t subjected to meeting strict conditions and, in some cases, having allowances, so not everyone can report them all as individual tax deductions. Your tax agent in Perth will be able to tell you what you can and can’t say based on your circumstances. Keeping track of your expenses is a good habit to develop. Keep a detailed record of your expenditures on an excel sheet or, if you prefer, a notepad. Keep all of your receipts in one secure location and divide them into months so that they’re easier to provide at tax time. The best way to differentiate them is to use separate envelopes or files – simply write the month on the outside and you’ll be good to go. If you own a business then make sure you hire a registered tax agent who will make the best decisions of your annual tax returns.