How to calculate your income tax

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Income tax explained

In a nutshell, income tax is money taken from the income you earn and paid to the government. It can apply to a range of income sources, including salary, wages, property investments, or profits from selling shares. Most of us don’t think too much about income tax – especially those who are working full time where tax is deducted from your pay cheque before you see it. But because there are a range of sources where you might be required to pay tax, it’s important to get up to speed with income tax rates and regulations.

 

Marginal tax rate

The amount of tax you pay depends on how much you earn. This means that incomes are divided into tax brackets, which dictates how much tax you will pay as a percentage – also known as your marginal tax rate. Here’s a breakdown of current rates:

 

Taxable incomeTax on this income
$0 – $18,200Nil
$18,201 – $37,00019c for every dollar over $18,200
$37,001 – $90,000$3,572 + 32.5c for every dollar over $37,000
$90,001 – $180,000$20,797 + 37c for every dollar over $90,000
$180,001 and over$54,097 + 45c for every dollar over $180,000

 

Reducing your income tax

Things have been pretty simple so far, but where understanding your income tax gets a little more complicated – but a lot more worthwhile – is reducing your income tax. This can be done through a range of deductions that are offered by the government to effectively lower your taxable income.

For example, you can claim deductions for any work-related expenses that you’ve incurred in order to earn your income. This includes vehicle or travel expenses, home office expenses, education costs, tools or equipment used, or even clothing and dry-cleaning expenses. There are a few rules to keep in mind – firstly, you have to have spent the money yourself and not been reimbursed, secondly the costs have to directly relate to your income-earning activities, and lastly you must have a record to prove it. But if you can fulfil these requirements, you could be well on the way to reducing your tax bill.

If you have a property investment, there are a range of tax deductions you can make that impact not only the amount you pay on your investment income, but also how much you pay on other income such as your employment salary. Check out our dedicated page for property investment and income tax to explore your options.

 

Use an income tax calculator

If you want to know more about exactly how much tax you can expect to pay on your income, consider using an online tax calculator. Reventon has launched a range of financial tools to support your wealth building journey, including an income tax calculator providing a full breakdown of your costs. Discover your tax home pay and tax rates on a weekly, fortnightly, monthly and annual basis. What’s more, you can drag the income controller to determine how much a pay increase or decrease will impact the figures.

Consider a tax accountant

If you gain income from anything else other than an employment salary (for example you receive money from an investment or you are a sole trader) tax can start to get complicated – and fast. In these situations, it’s highly recommended that you seek professional advice from an accountant to make sure you’re complying with tax rules, to avoid a hefty bill at the end of the year, and also to ensure you’re getting the maximum use out of deductions and offsets. To get support from a trusted, experienced accountant, get in touch with Reventon who can offer you full accountancy and tax services so you not only save money, but you save time and gain peace of mind as well.

Learn more about Reventon’s accounting services or get in touch to book an appointment today.


 

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