Filing your individual tax return can strike panic into even the most well-versed people. It’s a stressful time and the thought of getting audited spikes that tax anxiety even more. Even if you’ve been entirely truthful, it’s an uncomfortable experience being on the receiving end of an ATO audit.
To save you from ever having to go through it, here are five things you could be doing that may lead to an audit:
- Not Including Your Entire Taxable Income
We’re beginning with the most obvious (yet overlooked) error that leads to a tax audit: not including all of your taxable income when filling out your tax return.
There are no ‘ifs,’ ‘buts,’ or ‘maybes,’ and nor is there a grey area.
Your income includes capital that you’ve gained from shares or property, any foreign income (which is particularly common for online businesses), and interest from your bank.
For small businesses, it’s essential to include every single sale you make on your tax return. If you don’t declare all of your sales, the ATO will rank your business as performing negatively. If your business isn’t functioning to the benchmark within your sector, you’re heading for an ATO audit.
- Claiming Expenses Or Deductions To Which You’re Not Entitled
The tax office is focusing massively on deductions at the moment. Many businesses are facing audits due to claiming tax relief on a wide range of things they’re not entitled to claim.
Luckily, the tax department has made it abundantly clear:
- You must only claim for things you’ve genuinely spent money on;
- You cannot pay for private or domestic costs (your commute, for example, is not tax-deductible);
- You must keep receipts and proof of payment for all claimed items.
- Stating Your Income Is Lower Than It Actually Is
The key takeaway to avoid trouble with taxes can be summarized in one word: honesty. If you can, hire an accountant to ensure your tax return is submitted accurately. You may want to check Accountants Direct for Accounting and Financial services.
If you’re claiming that your income is considerably lower than it actually is, and your assets prove this, you’re essentially asking for the tax department to audit you. If a disconnect between your brand new Ferrari and your $10K annual salary is detected, they’ll quickly connect the dots and realize that your lifestyle couldn’t be maintained on this wage.
The only thing the tax office can do in such circumstances is to audit you. If they discover dishonesty, you’ll likely face hefty consequences.
- Having A Vastly Different Figure To Previous Years
While this is a tricky thing to avoid if you’re honest on your tax return, it’s best to expect an audit if your end figures are dramatically different – be that larger or smaller – than previous years,
It’s not uncommon for auditors to compare your previous tax returns to spot patterns. If there are substantial differences, it serves as a red flag. The best thing, in this case, is to expect it in advance and have clear answers prepared.
- Poor Past Experience Of Filing Returns On Time
If you filed your tax return late in the past, the tax office may flag you and monitor your submission date. It’s not only submitting your return before or by the due date but adhering to all compliance submissions. This includes employee reporting, fringe benefits tax, and activity statements.
Audits are stressful and make filing your taxes feel even more nerve-wracking. The good news is, most of these actions can be avoided by being diligent about filing your taxes each year.
The idea of an audit may be scary, but if you follow the tips above, you’ll be in a safer position. If you can, hire an accountant to ensure your tax return is submitted accurately.
