If you haven’t completed a tax return before, you probably have no idea what a tax deduction is.
During the year, you may spend some money on something for work, if eligible, this is what we call a work-related expense, in the tax world, this is known as a ‘tax deduction’.
So, how does a tax deduction work?
The amount spent on your work-related expense is deducted from your ‘Assessable Income’ (money you earned during the year before tax was withheld e.g. Wages). Once the money has been deducted from your Assessable Income, the income leftover (minus your Tax-Free Threshold) equals your Taxable Income (money you earned during the year minus your expenses and tax-free threshold).
Your Taxable Income is the amount of money you are taxed on during the financial year.
In a nutshell:
- You buy something for work
- You enter in the amount you spent on your tax return
- This reduces your income which in turn reduces the amount of tax you pay
Tax Deductions do not mean you get 100% of what you spent back, once the amount is deducted from your income, the leftover is taxed at your Marginal Tax Rate. If you have your payment summary, you can have a play on our Tax Calculator to see what your tax refund might be less your work-related expenses, it’s pretty neat.
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Note that the information provided is general in nature and subject to change, please contact one of our professionals who can evaluate your circumstances and provide more accurate advice to your current situation.