H&R Block reveals the top tax mistakes

H&R Block listed some of the most common tax mistakes to watch out for so you can avoid getting into any kind of tax trouble this year.

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According to H&R, under the current self-assessment system, if taxpayers don’t declare their income or claim deductions incorrectly, they could incur huge penalties from the Australian Tax Office.

Mark Chapman, Director of Tax Communications for Australia’s largest firm of tax accountants H&R Block said, “This means in effect taxpayers can claim ‘anything within reason’ but if the claims are found to be incorrect, the taxpayer is required to repay the tax avoided, plus pay interest on incorrect claims at around 9.5% per cent per annum.

“If the ATO office believes that the taxpayer has acted carelessly, a penalty between 25% and 95% of the tax avoided may also be charged”, he added.

Here are some of the common tax mistakes:

Not declaring all your income

These days, the tax office receives most of your income information electronically from third parties so if this turns out to be different from what you declared in tax returns, the tax office will issue an income discrepancy notice. If it is found that you have under declared your income, the tax office will issue an amended assessment and general interest charge of about 9.5% will apply, together with a 25% culpability penalty. Do it again and the penalty can add up to 50% of the tax avoided!

Personal services income

In the tax law, personal services income is defined as income, which is mainly a reward for your personal efforts, skills and exertion. Alienation of such income occurs when an individual tries to reduce or defer their income tax and other liabilities by diverting their personal services income through companies, partnerships or trusts that are not conducting personal services businesses. Remember that only an individual can have personal services income.

Home office

If you are using your home as a home office to work at home after hours, you are not entitled to claim a percentage of rent or the interest on a mortgage. You can only claim a percentage of the actual costs incurred, which includes electricity and heating costs, depreciation of office furniture and equipment and a percentage of telephone and Internet use based on a log book kept for a four-week period.

Self education

It’s important to make sure that the education undertaken has the necessary connection with the income you are currently earning, or else the deduction is not permissible.

Not claiming senior Australian Tax Offset

This rebate has risen in the past few years and means that many taxpayers, who are self-funded retirees, don’t need to pay tax until their income gets to the same taxable levels as pensioners.