10 of the Most Common Tax Deduction Mistakes
Tax deductions are expenses that can be subtracted from your taxable income to reduce the overall amount of tax payable for that year. Common examples include work-related expenses such as home office costs or travel for business purposes.Β
Here, weβll explore the top 10 tax deduction mistakes people make at tax time β and how to avoid them.
1) Incorrect Personal Information
It may seem simple, but submitting incorrect personal details is one of the most common tax return mistakes. Even something like a spelling mistake in your name can result in processing delays.
Personal information includes the following:
- Name
- Date of birth
- Address, email, and phone number
- Tax File Number (TFN)
- Bank account details
- Residency status
- Spouse/dependent information
- Medicare detailsΒ
Top TipΒ
To avoid errors, make sure to double-check all your personal details before submitting your tax return, and make sure it matches with whatβs on file with the Australian Tax Office (ATO).Β
Step-by-step guidance can also be found here: How to Lodge a Tax Return in Australia.
2) Failing to Report All Income
When you fill in your tax return, you need to declare all your sources of income β not just from your main employer. Because the ATO receives information from other sources (such as your employer and your bank), they will notice if something is missing.Β
Here are the various types of income categories that you may need to declare:
- Employment income
- Salary or wages
- Bonuses and commissions
- Allowances (e.g., car, travel, meals)
- Investment income
- Interest from bank accounts
- Dividends from shares
- Rental income from properties
- Government payments
- Centrelink payments (e.g., JobSeeker, Youth Allowance)
- Age pension or other government pensions
- Business income
- Sole trader or partnership income
- Payments received for freelance or contract work
- Capital gains
- Proceeds from selling assets like property, shares, or crypto (if held as investments)
- Superannuation paymentsΒ
- Withdrawals from superannuation (if applicable, e.g., early release due to financial hardship)
- Foreign income
- Overseas employment or business income
- Foreign investments (e.g., dividends, interest)
- Other income
- Prizes and awards (e.g., cash winnings)
- Insurance payouts that replace lost income
- Crowdfunding income (if related to business or personal profit)
Top Tip
Throughout the year, keep a record of any income you receive so you can make sure you declare everything in your tax return. You might need to consult with a professional accountant if youβre unsure.Β
3) Overlooking Deductions and Credits
Another of the most common EOFY tax return mistakes is deductionsβ and credits β i.e. work-related expenses, charitable donations, and education costs that you have paid for throughout the year.Β
At tax time, you have an opportunity to claim these types of expenses as deductions, but often people forget to do this, or they are not able to do this because they havenβt kept receipts.Β
Top Tip
You can avoid making this mistake by getting familiar with the deductions and credits you can claim. Head over to this page for more information about which expenses you can claim as tax deductions: Deductions You Can Claim.
You also need to find a system that works for you β so you can store your receipts throughout the year and easily access this information when itβs time to complete your tax return.Β
4) Claiming Ineligible Deductions
Sometimes when filling out a tax return, people get confused about what theyβre eligible to claim as a deduction β which can lead to making incorrect claims. In these cases, the ATO may review your tax return, and if they discover that youβve knowingly made an invalid claim, you might have to pay a fine.Β
Top Tip
The key to avoiding this mistake is to become familiar with what you are allowed to claim as a deduction. Guidance on this can be found here: Tax Deductions in Australia β Tax Guide.Β
If youβre unsure, please seek advice from a financial professional, who can review your tax return to make sure everything is correct before you submit it for assessment.Β
5) Incorrectly Calculating Expenses
When youβre claiming deductions, make sure you take the time to do your calculations correctly. If you overestimate how much money youβre allowed to claim for expenses, this could create problems with the ATO when you submit your tax return. On the flip side, underestimating your deduction claim will mean youβll end up paying more tax than necessary.
Top Tip
If youβre uncertain about how to calculate your deductions, accounting software such as QuickBooks Online can help. QuickBooks is especially useful if youβre working as a freelancer or running your own small business.Β
An accountant can also help you prepare and submit your tax return β so you can feel confident that everything has been filled out correctly.Β
Find assistance here: Help and support to lodge your tax return.Β
