The tax deductions Australians are most likely to get wrong

Think you're maximising your tax refund? These five common deduction mistakes could cost you money, or land you in trouble with the ATO.

Everyone loves a tax refund. But every year thousands of Australians either miss out on deductions they're entitled to - or claim expenses that simply don't qualify.

The Australian Taxation Office (ATO) has become increasingly sophisticated at identifying incorrect claims, using data matching and other technology to compare tax returns against information from employers, banks, insurers and other organisations.

The good news?  Most tax mistakes are entirely avoidable.

Recent H&R Block research found that six in 10 Australians questioned whether they'd lodged their tax return correctly after submitting it, while four in 10 believe they've previously missed something on a return - highlighting just how common tax uncertainty can be.

Here are some of the deductions that taxpayers are most likely to get wrong this year - and how to avoid making the same mistakes.

'I work from home most days, so I'll just estimate my hours'

Case study: Sarah, marketing manager

Sarah worked from home three days a week throughout the year.

When it came time to lodge her tax return, she estimated she'd worked around 700 hours from home.

The problem? Estimates aren't enough.

If Sarah wants to claim working-from-home expenses using the fixed-rate method, she needs records of the actual hours she worked from home.

A diary, roster, timesheet or electronic calendar can all help support her claim.

Working from home doesn't mean every household expense becomes deductible either.

You can't simply claim part of your mortgage repayments, and you need to understand exactly which costs are already covered under the ATO's fixed-rate method.

The lesson: Keep records throughout the year-not just at tax time.

'I use my car for work, so I'll claim the maximum'

Case study: Ben, electrician

Ben regularly travels between different job sites during the day, so he knows some of his travel is deductible.

Unfortunately, he also includes his daily commute from home to his first job and claims the maximum number of kilometres without keeping any evidence.

That's a common mistake.

Travel from home to your normal workplace is generally private and not deductible.

Travel between worksites, visiting customers or travelling from one employer to another may be deductible.

Even if you use the cents-per-kilometre method, you still need to be able to explain how you calculated your work-related kilometres.

The lesson: Just because you drive for work doesn't mean every kilometre is tax deductible.

'I have to wear business clothes, so surely they're deductible'

Case study: Emma, accountant

Emma spends thousands each year on suits, dresses and shoes because her employer expects her to look professional.

Many people assume that's deductible.

It isn't.

The tax rules distinguish between conventional clothing-which remains a private expense-and items such as compulsory uniforms, protective clothing or occupation-specific clothing.

Even expensive office attire doesn't become deductible simply because your employer has a dress code.

The lesson: Looking professional and being entitled to a deduction aren't the same thing.

'My phone is basically a work phone'

Case study: Daniel, sales representative

Daniel uses his mobile constantly for work.

He also uses it to call family, stream music and browse social media.

If he claims his entire annual phone bill as a work expense, he's likely to have a problem.

Only the work-related portion is deductible.

The same applies to home internet services.

A reasonable calculation based on actual usage is far more likely to stand up if the ATO asks questions.

The lesson: Work use is deductible. Private use isn't.

'I'm studying, so everything should be deductible'

Case study: Priya, registered nurse

Priya enrols in a postgraduate nursing qualification that will help her progress into a more senior clinical role.

Those education expenses are likely to be deductible because they're directly connected to her existing employment.

If Priya instead decided to study architecture with the intention of changing careers, those expenses generally wouldn't qualify.

The lesson: Tax deductions are designed to improve your current career-not fund a new one.

The biggest mistake of all? Claiming what everyone else claims

Tax advisers hear it every year.

"My mate claimed it."

"My colleague told me it was deductible."

"I saw someone talking about it on social media."

Unfortunately, tax law doesn't work like that.

Two people doing similar jobs can have completely different deduction entitlements depending on who paid the expense, whether they were reimbursed, and exactly how the item relates to earning their income.

Every deduction needs to satisfy three basic tests:

• You paid for the expense yourself.
• It directly relates to earning your income.
• You have records to prove it.

Miss any one of those tests and the deduction may not be allowed.

Don't let the pursuit of a bigger refund backfire

Most Australians want to do the right thing.

The challenge is that tax law isn't always intuitive.

Claiming too little means paying more tax than necessary.

Claiming too much can result in amended assessments, penalties and interest if the ATO reviews your return.

The smartest approach isn't to chase the biggest possible refund - it's to claim every deduction you're legally entitled to, and nothing you aren't.

That's why keeping good records throughout the year is still the simplest tax strategy of all.

It makes lodging your return easier, gives you confidence that your claims are correct, and means you're prepared if the ATO ever asks you to substantiate them.

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