Commonly Overlooked Tax Deductions and How to Claim Them
Navigating the complexities of New Zealand’s tax system can be challenging, and many Kiwis unknowingly miss out on valuable deductions. Understanding and claiming these often-overlooked tax deductions can significantly reduce your tax liability and put more money back in your pocket. Let’s explore some commonly overlooked tax deductions in New Zealand and how to claim them effectively.
Home Office Expenses
With the rise of remote work, many New Zealanders are now eligible to claim home office expenses. However, this deduction is frequently overlooked or miscalculated.
What You Can Claim:
- A portion of your rent or mortgage interest
- Utilities (electricity, gas, internet)
- Home insurance
- Repairs and maintenance related to your work area
How to Claim:
Calculate the percentage of your home used exclusively for work. For example, if your home office takes up 10% of your home’s total area, you can claim 10% of the relevant expenses. Keep detailed records and receipts of all expenses.
The Inland Revenue Department (IRD) provides a simplified method for calculating home office expenses, which can be found on their website.
Vehicle Expenses
Many Kiwis use their personal vehicles for work-related purposes but fail to claim the associated expenses.
What You Can Claim:
- Fuel costs
- Vehicle maintenance and repairs
- Registration and insurance
- Depreciation
How to Claim:
You can use either the kilometre rate method or the actual cost method. The kilometre rate method is simpler and allows you to claim a set amount per kilometre driven for work. For the 2022-2023 tax year, the rates are:
- 83 cents per kilometre for the first 14,000 kilometres
- 31 cents per kilometre for any distance over 14,000 kilometres
Keep a detailed logbook of your work-related travel, including dates, destinations, and purposes of trips.
Professional Development and Training
Expenses related to improving your skills for your current job are often tax-deductible but frequently overlooked.
What You Can Claim:
- Course fees
- Textbooks and study materials
- Travel expenses related to attending courses or seminars
How to Claim:
Keep all receipts and documentation related to your professional development expenses. Ensure the courses or training are directly related to your current employment or business.
Tools and Equipment
If you purchase tools or equipment necessary for your work, these expenses may be tax-deductible.
What You Can Claim:
- Work-specific tools and equipment
- Protective gear
- Uniforms or specialized clothing required for work
How to Claim:
Keep receipts for all purchases. For items costing more than $500, you may need to depreciate the cost over several years rather than claiming the full amount in one year. Consult the IRD’s depreciation rates guide for specific items.
Charitable Donations
While many Kiwis are aware they can claim tax credits for charitable donations, some forget to keep proper records or miss out on claiming all eligible donations.
What You Can Claim:
- Donations to approved charitable organisations
- School donations
How to Claim:
You can claim a tax credit of 33.33% of the total donations made, up to the amount of your taxable income. Keep all receipts and claim through your myIR account or by filing an IR526 form.
Income Protection Insurance
Premiums paid for income protection insurance are often tax-deductible, but many taxpayers overlook this deduction.
What You Can Claim:
- Premiums paid for income protection insurance policies
How to Claim:
Include the total amount of premiums paid in your tax return. Be sure to differentiate between income protection insurance and life insurance, as life insurance premiums are generally not tax-deductible.
ACC Levies
Self-employed individuals and business owners often overlook ACC levies as a tax-deductible expense.
What You Can Claim:
- ACC levies paid as part of your business expenses
How to Claim:
Include ACC levies in your business expenses when filing your tax return. Keep all documentation related to ACC payments.
Bank Fees and Interest
For self-employed individuals and businesses, bank fees and interest on business loans are often tax-deductible.
What You Can Claim:
- Bank fees for business accounts
- Interest on business loans or overdrafts
How to Claim:
Include these expenses in your financial statements and tax return. Ensure you only claim fees and interest related to your business activities, not personal accounts.
Subscriptions and Memberships
Professional subscriptions and memberships related to your work are often tax-deductible but frequently overlooked.
What You Can Claim:
- Professional association memberships
- Subscriptions to work-related publications or software
How to Claim:
Keep receipts and include these expenses in your tax return. Ensure the subscriptions or memberships are directly related to your current employment or business.
Tips for Maximising Your Tax Deductions
- Keep Detailed Records: Maintain a comprehensive record-keeping system for all potential tax-deductible expenses throughout the year.
- Use Accounting Software: Consider using accounting software to track expenses and categorise them correctly for tax purposes.
- Stay Informed: Keep up-to-date with changes in tax laws and regulations. The IRD website is a valuable resource for the latest information.
- Consult a Professional: If you’re unsure about certain deductions or have a complex tax situation, consider consulting a tax professional or accountant.
- Be Honest and Accurate: While it’s important to claim all eligible deductions, ensure all claims are legitimate and can be substantiated if audited.
Many New Zealanders miss out on valuable tax deductions simply because they’re unaware of what they can claim. By understanding and claiming these commonly overlooked deductions, you can potentially reduce your tax liability and improve your financial position.
Remember, tax laws and regulations can change, so it’s crucial to stay informed and seek professional advice when needed. The IRD provides extensive resources on their website, including detailed guides on various deductions and how to claim them correctly.
By taking a proactive approach to your tax planning and being diligent about record-keeping, you can ensure you’re not leaving money on the table when it comes to your tax return. While the process may seem daunting, the potential savings make it well worth the effort.