Why Don’t I Get Back Dollar for Dollar?
Every year, we field heaps of questions from new and returning clients about their tax returns. One of the most common each tax season is— why don’t the tax deductions I claim equal the refund I get?
Turns out, the answer is simple: tax deductions bring down your overall taxable income.
Based on your income, you’ll fall into various tax brackets that determine your individual tax rate. You pay tax on this income based on this tax rate and it’s that same principle for deductions. This means you can claim a deduction and, in return, get back your tax rate percentage of that deduction. For example, if your tax rate is 25% and you claim $100 you get back $25. Claiming $3,000 in car expenses is not going to get you $3,000 equivalent refund — it’s going to get you $300 if your tax rate is 10%.
If you’ve found yourself spending money so you can ‘claim it back in tax’ be careful. You’ll never get back 100% of the cost of that claim.
It is also important to note that regardless of the deductions that you make, you cannot receive back more than you actually pay in tax each year. You can’t set the Tax Office up to pay you back for money you haven’t actually paid.
In summary, when you make a tax claim it does not mean that you will get that full amount back. When claiming expenses in your tax return it lowers your taxable income which means, in the end, you pay less tax overall.
Affinitas Accounting has been making your deductions work for you for more than 25 years. For help with your tax return preparation, or for related financial advice, call 07 3510 1500, email firstname.lastname@example.org or reach us on Messenger below.