I’ve got a $500 tax bill — I’m going to make sure this never happens again
Key takeaways
- I've just completed my tax return and despite my best efforts to maximise my deductions, I owe the tax office $500.
- This is because my deductions aren't enough to outweigh the Medicare Levy Surcharge.
- What's next: I'm getting private health cover and making extra super contributions to limit my tax bill next year (and grow my retirement wealth).
I always do my tax return nice and early. I like getting it sorted and having some of my money come back to me.
But when I lodged mine this week, I was a bit disappointed: I owe the Australian Tax Office $500.
Why? Because I earn more than the Medicare Levy Surcharge (MLS) threshold and I don't have private health insurance with hospital cover.
Because of this, the government charges me a bit more tax. Crucially, this tax doesn't get taken out of my pay each month automatically. So that's why I owe the ATO.
Need health cover?
Avoid the MLS and get the right health insurance with hospital cover
Even my deductions couldn't save me
Now of course, I claimed every single deduction I possibly could to help bring this down.
I claimed several pieces of equipment I purchased for work, charitable donations and my working from home deductions.
That last one is huge for me. I work from home full-time, so I was able to claim well over 1,000 hours using the ATO's fixed rate method of 70 cents per work hour.
But none of that was enough to save me. I managed to halve my tax bill, but I can't get it any lower.
How to make sure this never happens again
When you think about it, getting money back on your tax return isn't technically a good thing. It means you paid too much tax.
By underpaying, I've actually kept money out of the tax man's hands. It's been sitting in my offset account saving me interest charges.
But in reality, I want to avoid overpaying on tax if I can. So I'm going to make two moves that will benefit me in the long run and avoid a future tax debt.
- Get health cover. I've already done this. While I'm not a big fan of private health insurance as a concept, the levy is heavy and getting hospital cover at my age is probably wise. Now I'll avoid the MLS at the end of this financial year.
- Make a voluntary super contribution. By adding to my super, I'll be able to grow my retirement wealth. It also lets me claim a nice deduction at tax time. This is a no-brainer and will leave me better off in retirement.
This time next year, I'll end up paying less tax. And the tax man will owe me money.
Sources
Ask a question