Tax season can be a stressful time for many Australians. One of the most common questions individuals and businesses face when filing a tax return with the Australian Taxation Office (ATO) is figuring out what a balancing account is.
Balancing accounts serve as a way for the ATO to keep track of a taxpayer’s income and expenses. They are used to ensure that the taxpayer’s income and expenses are correctly reported and that the taxpayer has paid the correct amount of tax.
Understanding the Balancing Account
The balancing account is the difference between the taxpayer’s total income and total expenses. It is calculated by subtracting the total expenses from the total income. If the result of this calculation is a positive number, it will be added to the taxpayer’s income, meaning that the taxpayer will pay more tax. If the result of the calculation is a negative number, it will be deducted from the taxpayer’s income, meaning that the taxpayer will pay less tax.
When the ATO receives a tax return, it will check the balancing account to ensure that the taxpayer’s income and expenses have been correctly reported. If the ATO finds any discrepancies, the taxpayer will be asked to provide more information or amend their return.
Reporting Income and Expenses
In order for the balancing account to be calculated correctly, it is important that the taxpayer accurately reports their income and expenses.
Income should be reported in full, including any income from investments, wages, pensions, or other sources. It is important to note that income should be reported before deductions or tax credits are applied.
Expenses should also be reported in full, including any deductions or tax credits. Expenses should be reported after deductions or tax credits have been applied.
Claiming Deductions and Credits
In addition to reporting income and expenses, taxpayers are also able to claim deductions and credits. These deductions and credits can be used to reduce the amount of tax a taxpayer has to pay.
When claiming deductions, make sure to keep any receipts and documents that prove the deduction is valid. This could include receipts for medical expenses, travel expenses, childcare expenses, etc.
Tax credits are also available for certain expenses. For example, there are tax credits for education expenses, home office expenses, and childcare expenses.
If you need clarity or assistance with any tax-related matters, Perth Tax People is here to help. We have a team of experienced and qualified tax advisors who can help you understand the ATO’s requirements and ensure that your tax return is accurate and up to date. Contact us today to get started.