Tax terms can be confusing at times. With several factors and computations to take into account, some people find it hard to understand how income tax and tax offset are calcualted. In this article, let’s shed some light into these terms and hopefully, you’ll have a better understanding of how income tax and tax offset work.
Income tax is money that you pay the government for what you earn. On the other hand, tax offset, is calculated using an individual’s taxable income. It reduces the amount of tax you’ll pay, resulting to an increase in returns.
Here are other things worth-knowing about income tax and tax offset:
- Rebates can come from different sources. Tax offset is usually applicable to people with low income, taxpayers who have dependent relatives, as well as senior citizens. It likewise applies to the taxable portion of a superannuation income stream. You can also be entitled to claim a tax offset from your private health insurance, if you receive Australian Government payments and allowances or if you serve in forces in a different country.
- Tax offset is different from tax deduction. Unlike a tax offset which directly decreases the amount of tax you owe, tax deduction reduces your taxable income. Common deductions include travel costs, interest paid on your investment property loan, as well as expenses on clothing, cleaning, and self-education.
- Use an income tax calculator. With this online tool, you can determine an estimate of how much income tax you need to pay, your net salary once your tax is removed, as well as your marginal tax rate.
- Choose an accountant or a tax agent. Tax can be a complex aspect as it involves a lot of factors and considerations. That’s why it is advisable to get an accountant or tax agent. He/She will be able to do your tax returns and understand how your income is taxed. In this way, you can make wiser decisions about your income and your finances in general.
These are just some of the things that you need to know as far as income tax and tax offset are concerned. Understanding these terms can be quite a challenge so it helps to seek professional advice so you will know what to claim and offset.
Do you know other important details about tax offset and income tax in Australia? You can share your insights in the comments section below.