5 Common Mistakes Taxpayers Make When Lodging Their Tax Returns

Lodging a tax return can be a complex process, and even small mistakes can lead to significant complications, delays, and potential penalties. Many taxpayers inadvertently make errors that can trigger audits by the Australian Taxation Office (ATO) or result in disallowed claims. From providing incorrect bank account details to misreporting income and overestimating deductions, these common mistakes can turn what should be a straightforward task into a stressful ordeal. Understanding these pitfalls is essential to ensure your tax return is accurate, compliant, and processed smoothly.

Incorrect or Incomplete Bank Details 

Providing incorrect bank account details when lodging your tax return can lead to significant complications. The Australian Taxation Office (ATO) typically sends refunds directly to the bank account provided on your return. If these details are incorrect, the refund may bounce back to the ATO, causing delays in the refund process. However, if the incorrect account details belong to another person, the money could be deposited into their account. Unfortunately, your bank cannot assist with an incorrect deposit made by the ATO, leaving you to contact the ATO to rectify the situation. This process can take weeks to resolve, and if the funds end up in a scammer’s account, you may never recover the money. Ensuring your bank account details are accurate is crucial to avoid such complications.

Incorrect Income Reporting 

Incorrect income reporting is another common mistake that can lead to serious issues when lodging your tax return. This often includes forgetting to include bank interest because it hasn’t been updated in your profile report, omitting capital gains tax for the sale of shares, or neglecting to declare employee shares that aren’t reported in your profile. Additionally, forgetting to include dividends from a private company can result in an incomplete income report. These oversights can lead to underreporting your income, which not only delays the processing of your return but can also trigger an audit by the Australian Taxation Office (ATO). Inaccurate reporting may result in penalties and additional taxes owed, making it essential to double-check all income sources before lodging your return.

Incorrect Reporting of Overseas Income and Capital Gain Tax 

Offshore or overseas income and capital gains are often overlooked by taxpayers, leading to significant issues when lodging their tax returns. Many individuals are unaware that they must report their worldwide income in Australia, which includes any earnings or capital gains from overseas assets. For example, if you own an overseas property that generates rental income, you are required to report that income on your Australian tax return. Similarly, if you sell an overseas property, the capital gains tax (CGT) on that sale must also be reported in Australia. The same applies to shares; any dividends received from a private company abroad must be declared, along with the CGT on the sale of those shares. Failing to report these offshore earnings and gains can lead to underreporting your income, triggering ATO audits, penalties, and additional taxes. It’s essential to understand your obligations regarding worldwide income to avoid costly mistakes.

Claiming Deductions Without Proper Records:

Claiming deductions without proper records is a common pitfall for many taxpayers, particularly when it comes to work-related expenses. While it’s tempting to maximise deductions to reduce taxable income, doing so without the necessary receipts or documentation can backfire. The Australian Taxation Office (ATO) requires that all deductions claimed on your tax return be substantiated with evidence, such as receipts, invoices, or logbooks. Without these records, your claims can easily be disallowed during an audit, leading to additional tax liabilities and possible penalties.

For example, if you claim deductions for work-related travel, such as car expenses or overnight accommodation, but don’t have the corresponding receipts or a detailed logbook, the ATO may reject your claim. Similarly, claiming home office expenses without maintaining proper records of hours worked and associated costs can also result in disallowed deductions. Even small expenses, like office supplies or work-related subscriptions, need to be documented.

Furthermore, the ATO has sophisticated data-matching systems that can identify inconsistencies between your claims and typical expenses for someone in your occupation. If your claims appear excessive or out of line with what is expected, this can raise red flags and increase the likelihood of an audit. Therefore, it’s crucial to keep detailed and accurate records for every deduction you plan to claim, ensuring that you are prepared if the ATO asks for evidence. Proper record-keeping not only helps you avoid penalties but also ensures you can legitimately maximise your deductions.

Overestimating or Miscalculating Deductions:

Claiming personal expenses as work-related expenses is a common mistake that can lead to serious consequences if identified by the Australian Taxation Office (ATO). Many taxpayers blur the lines between personal and work finances, often unintentionally. For example, claiming personal travel costs, like a family vacation, as a work-related expense, or including personal meals as work-related entertainment, can result in disallowed claims. The ATO requires clear separation between personal and work expenses, and failure to properly document this can lead to audits, penalties, and repayment of any tax refunds received.

Another frequent error is claiming personal items, such as a home computer or mobile phone, as work-related expenses without accurately apportioning the usage. The ATO only allows the portion of the expense that directly relates to work to be claimed, and supporting records must be kept. Misclassifying personal expenses as work-related not only risks penalties but also increases the likelihood of an audit. To avoid these issues, it’s crucial to maintain clear records and understand the rules around deductible work expenses.

Overestimating or miscalculating deductions is a common mistake that can lead to significant issues with the Australian Taxation Office (ATO). Many taxpayers, in an effort to maximise their deductions, may overclaim expenses like home office costs or car usage. This often happens when people estimate these deductions without doing the proper calculations or keeping detailed records. For instance, some may guess the percentage of their home used for work or the number of kilometres driven for business purposes, resulting in inflated claims that don’t accurately reflect their actual usage.

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Conclusion

Filing your tax return doesn’t have to be a source of stress or uncertainty. By avoiding common mistakes and ensuring your return is accurate and thorough, you can save yourself time, money, and potential headaches down the road. At Investax Group, we’re here to take the burden off your shoulders. Our team of experts is dedicated to getting your tax return right the first time, ensuring you’re fully compliant while maximizing your benefits. Use our checklist to collate your tax information, making the process even smoother. Reach out to us today—we’re ready to handle the details, so you can focus on what matters most to you.