Avoiding Tax Audits
Tax returns are not always done correctly by everyone. Whether it's an honest mistake or a deliberate act, everyone loses in the end.
ATO attention is more likely to be drawn to individuals who deal predominantly in cash or who have experienced large income fluctuations. In spite of this, anyone can be contacted, so it pays to stay on top of your paperwork and ensure you have receipts and documentation to support all of your claims. Even if you have everything in order, an ATO audit can take a lot of your time and resources.
In order to avoid audits, you can do a few smart things:
Always lodge your tax returns on time
There's nothing complicated here. When you stay on top of your tax returns and allow plenty of time for preparing and lodging your documents, you are less likely to make mistakes. As a result, your later returns are less likely to be scrutinized.
Make sure your calculations and deductions are accurate
Checking your numbers (and checking them again) before lodging your tax return isn't the most exciting activity in the world, but it's important to make sure everything is correct. Tax agents can help you make sure you tick all the right boxes as they will pick up any errors and bring them to your attention so you don't make any mistakes.
Be sure to claim only the deductions you're entitled to!
Depending on your occupation or industry, there are numerous deductions you can claim when doing your tax return. With our handy checklists broken down by career, you can determine what you can claim, and if you work with a tax agent, they will highlight any you might have missed in order to maximize your refund.
However, you must only claim legitimate deductions, and you must have receipts or documentation to support your claim. If you get caught using creative deductions, you'll not only have to pay it all back, but you'll also be fined heavily.
Record everything meticulously
Remember to retain receipts for everything you claim. Yes, we've said it before, but it's SO important that we're saying it again: keep them. As long as the date, vendor, cost, and details of the item are clearly visible, it's fine to keep these as digital records.
Keeping records when taking cash is particularly important
In certain professions and industries (such as taxi drivers, tradesmen, and shopkeepers), cash payments are more common, which is absolutely fine as long as you keep detailed records.
Generally, the ATO is more interested in cash-based businesses, so beware that you might be on their radar. By being extra vigilant with your records, you can avoid any issues related to under-declaring your income.
Clarity is king
By making your tax claims clear and easy to understand, you will reduce your chances of being audited. It is less likely that the ATO will need to follow up if they are able to easily understand what you are claiming and why. It is likely that they will ask for more information and maybe written proof of your claims if you have many vague or suspicious claims in your tax return.
The ATO audit can be dreaded. Following a few simple steps can reduce your chances of receiving the dreaded call, not to mention saving yourself a lot of time and trouble.
Thank you for reading!
Should you have any queries in regards to the above please contact our office on (03) 9728 1448
The TAS Team
3/653 Mountain Highway, Bayswater VIC 3153
Dorothea Farmakis (CPA)
Dorothea, our CPA Qualified Accountant (Registered Tax Agent), has over 25 years experience within international corporate firms in Accountancy, Funds Management and Asset Management for firms such as HSBC, P&O, Lend Lease and more.
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