5 Tax Mistakes That Could Get You Audited
5 Tax Mistakes That Could Get You Audited
Tax Time is the most stressful time of the year. Having to get everything sorted, and itemized before the deadline can cause alot of headaches. The last thing you want is to be audited by the ATO. Even though the chances of being audited may be low , but there is still a possibility that taxpayers should be aware of. Especially when the ATO becomes more vigilant every year.
This year, the ATO released a warning of audits for up to one million Australian taxpayers.
So lets try our best to not let that happen. Here's 5 simple mistakes that could get you audited.
1. MAKING AVOIDABLE ERRORS
Make sure you file your taxes carefully. Carefully review everything before you send it to the ATO. Even if you hire an accountant to file taxes for you, you still need to go over every detail to make sure simple things such as math errors or incorrect ABN numbers or addresses are avoided. Make sure you avoid all errors large or small as much as possible and attach all the correct documents and forms. The more complex your tax situation gets, the more you need to hire a good accountant to help you organise and file everything properly. If the ATO notices something missing or doesn't match previous returns then they may want to look at your situation more carefully.
2. NOT DECLARING YOUR FULL INCOME
A big NO NO. Big mistake that can cause the ATO to audit you is leaving out income or forgetting to include it when you file your taxes.
The ATO can match data submitted by your employers regarding your earnings. If the numbers don't match up, it could trigger an audit.
Make sure you file all of the income you receive for the year. Even if you are unsure it needs to be included. If it's taxable you need to include it. Don't forget one time payments like royalties from product sales or casual work.
If you have multiple streams of income, it can be hard to keep up with all your income. The best way is to record all your income weekly or monthly in a spreadsheet. That way you can keep organised and have it laid out clearly to show your accountant.
3. UNCLEAR DEDUCTIONS
The best way to lower your taxable income is by declaring your deductions but you have know which ones are deductible and which ones are not.
There are a list of deductions you can have and if you self employed the list increases, But this doesn't mean you can go overboard and deduct anything and everything.
For example - a certain percentage of car travel expenses may be deductible as opposed to the entire amount. You may need to provide evidence that you were using that vehicle to drive for work purposes as opposed to deducting every petrol receipt you have. Please talk to your accountant to find out exactly how to calculate this or read our other blog about Claimable Car expenses.
Here are the TOP 10 most common deductions.
1. VEHICLE EXPENSES
2. HOME OFFICE
3. START UP COSTS ( INC. SUPPLIES AND EQUIPMENT
NEEDED TO START BUSINESS)
4. BANK/ PAYPAL/ CREDIT CARD FEES
5. INTERNET AND PHONE CHARGES FOR BUSINESS
7. FEES FOR BUSINESS MEMBERSHIPS
8. POST OFFICE FEES
9. FEES FOR THE SERVICE YOU USE TO RUN YOUR BUSINESS
10. BUSINESS COACHING
4. TOO MANY CHARITABLE DONATIONS
You can donate to charity but don't exaggerate how much you are donating but writing some inflated figure at the end of financial year. The ATO can access your icnome level and grasp what would be a realistic amount for donations. If you amount seems like too much they may question it.
To avoid this, make sure you hold onto your receipts. Make a realistic estimate .
5. CONTINUING TO WRITE OFF A LOSS FOR A HOBBY BUSINESS
When you start a new business it's normal that the first year you endure a loss, however if you continue to report a loss for 3 to 5 years then the ATO may flag you and view your business as avoiding to pay taxes. They could then label your business as a hobby. Then you may not be able to claim any future deductions. You will most likely get audited and can end up having to pay even more taxes.
IF YOU DO GET AUDITED…
First get an accountant if you don't have one, then go through all your return documents and most likely you need to make a correction which could mean paying more tax.
Or you can fight against then ATO if you are sure you are not in the wrong.
Contact us at Dolman Bateman or Buildersbooks if you are looking for an experienced accountant or Bookkeeper. We can help make sure you don't get audited and guide you through the process if have already been audited.
This information is not to be relied upon without speaking to your accountant, tax agent or financial adviser depending on the advice.