ATO Tax Audit- this phrase alone is enough to send a lot of people into a state of panic.
So, it is natural for you to find ways that will ensure that you don’t get audited.
The ATO can identify a few red flags that could potentially trigger a tax audit. So, in order to avoid a tax audit from the ATO, it is necessary that you learn about these triggers.
First, let us understand what an ATO tax audit is.
ATO Tax Audit
The Australian Tax system has been designed to be fair to everybody. On a yearly basis, the ATO contacts around 2 million taxpayers to review their tax returns to ensure that everything is on track. However, not all of them are subjected to a complete audit.
If you mainly deal in cash or your income has big ups and downs, you might catch the ATO’s eye. But honestly, anyone can be contacted by them, so it’s really important to stay on top of your paperwork.
Make sure you have all your receipts and documentation to back up your claims. Even if everything is in order, an ATO audit can still eat up a lot of your time and resources. So, it’s best to be prepared and organised!
How do I avoid a tax audit?
Lodging on time
One simple way to avoid an ATO tax audit is by managing your tax returns throughout the financial year.
If you wait until the last minute to gather your documents, you’re more likely to make mistakes.
By staying on top of your accounts and receipts, you’ll thank yourself later. Trying to find information months (or even years) later is nearly impossible, so it’s much better to be proactive.
Review calculations and declare deductions
Deductions are probably the most enjoyable part of doing your tax return. But be careful—the ATO will notice if you add too many work-related deductions, especially after the pandemic.
If you’re unsure, remember you can only claim items you actually spent money on, so make sure to keep records to back up your deductions.
While it’s tempting to try and claim as much as possible, it’s best to stick to legitimate deductions. There are plenty of helpful resources online to figure out what you can and can’t claim on your tax return.
If you’re still unsure about a deduction, we recommend keeping a record of the purchase and discussing it with a tax accountant when you’re filling out your tax return.
Maintaining accurate records
We all know how important it is to keep receipts for everything you claim, whether they’re digital or physical.
If you run a cash-based business, the ATO will take a closer look, so it’s vital to have records of all your transactions. Being extra careful with your records can help you avoid issues, as long as you’re not under-declaring your income.
Keep documents for five years
When the ATO reviews your tax returns, they’ll look back into your history.
For individuals and small businesses, the review period is generally two years, and for other taxpayers, it’s four years from the day after you receive your notice of assessment.
Remember to keep your records long enough to cover both the five-year retention period and the review period.
How can we help you avoid a tax audit?
Getting professional help with something as sensitive as a tax return is always a good idea. At Clear Tax Accountants, we offer tax planning, consultation, and advice to business owners.
Preparing your tax return is crucial to ensuring your business stays on track when tax time rolls around.
We assist by organising your monthly, quarterly, and annual activity and instalment statements. This way, the information you provide to the tax department is precise, and your tax returns are accurate.
Let Clear Tax Accountants take the stress out of tax time for you. Contact us today to ensure your business is fully prepared and compliant, giving you peace of mind and helping you avoid a tax audit.
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