Understanding Income and Expenses

TAX INCOME

Income: What Is It?

Discover the ins and outs of taxable income. Income refers to any money you receive in a tax year that is subject to taxation by the government. These are the types of income you need to include when you lodge your tax. 

Wage and Salary Income:
This is the money you earn from your job, and it's one of the most common types of income. It is important to note that wage income generally has PAYG tax deducted, providing a tax credit in your tax return.

Self-Employment Income:
If you run your own business or work as a freelancer, the money you earn from your work is considered self-employment income and is under an ABN. 

Investment Income:
This includes earnings from investments such as dividends, interest, cryptocurrency and capital gains.

Rental Income:
If you own and rent out a property. Also if you sublet a property (that you may or may not own) the rent you receive is considered taxable income.

Retirement Income:
Income from pensions, annuities, and retirement account withdrawals can be taxable.

Miscellaneous Income:
This category covers a wide range of sources, including prizes, awards, gambling winnings, and more.

Knowing what counts as income is a must because it's the building block for your tax math!

Here are some common types of allowable expenses:

Business Expenses:
If you're self-employed or run a business, you can deduct business-related expenses such as rent, utilities, office supplies, and mileage.

Work-Related Expenses:
Eg: office/working from home, telephone, internet, meetings etc), work or business-related travel, car expenses, clothing and appearance (depending on your role). 

Superannuation Contributions:
Eg: office/working from home, telephone, internet, meetings etc), work or business-related travel, car expenses, clothing and appearance (depending on your role).

Costs related to managing your accounts and tax:
Eg: Accountant fees, Xero.

Educational Expenses:
Some educational expenses, such as tuition and certain student loan interest, may be deductible.

Mortgage Interest on an Investment Property: 
The interest you pay on your mortgage is generally tax-deductible if you itemise your deductions.

Charitable Donations:
Donations to qualified charitable organisations are deductible.

State and Local Taxes:
You may be able to deduct state and local income taxes or sales taxes, as well as property taxes.

Job-Related Expenses:
Certain job-related expenses, such as work-related travel, tools, and required uniforms, may be deductible.

Miscellaneous Deductions:
Some other miscellaneous deductions, such as unreimbursed employee expenses or tax preparation fees, may also be allowable.

Your Handbag??
Did you know you may be able to claim your handbag on tax? It needs to be for work purposes only - as in it carry your laptop and work items to and from meetings. (You can thank me later) 

It's important to note that there are specific rules and limitations for each type of deduction, and not all expenses are deductible. Therefore, keeping accurate records and understanding tax laws is essential.

Income and allowable expenses are fundamental concepts in the world of taxes. By understanding what constitutes income and what you can deduct as expenses, you can make informed financial decisions and potentially reduce your tax liability. Remember that tax laws can be complex, and it's a good idea to consult with a tax professional or use tax software to ensure you're taking full advantage of available deductions while remaining compliant with tax regulations. Being informed and organised can lead to a smoother tax season and potentially save you thousands of dollars in the long run.