Tax is an important part of the financial year. A lot of people associate 1 July with completing your online tax return. It’s a simple process to complete an online tax return with One Click Life and the easiest way to calculate taxes without having to leave your house!
In Australia, taxes are used to fund the government’s public services, including healthcare, education, infrastructure, and defence. As a taxpayer, it’s important to understand how your taxes are calculated so that you can ensure that you are paying the correct amount. In this blog, we’ll explain how to calculate tax in Australia and how to use a tax calculator during the year to help you along the way.
So, let’s explore the questions “how to do tax”, “tax how to calculate” and “how to calculate tax”.
Calculating Tax in Australia
The Australian tax system is based on a number of tax thresholds. The more you earn, the higher the rate of tax you pay. In short, the more you earn, the more tax you pay. There are different tax rates depending on your income, and these rates change each year. To calculate tax, you need to follow these steps:
Step 1: Determine Your Taxable Income
Your taxable income is your total income for the financial year minus any tax deductions that you are entitled to. You can find your income on your pay slip, payment summaries, or group certificates from your employer. These will show up automatically in your online tax return.
Step 2: Determine Your Tax Rate
Once you know your taxable income, you need to determine which tax rate applies to you. The tax rates change each year, so make sure you check the latest tax rates. If you earn under the tax threshold of $18,200, you have no tax to pay. This also means if you earn under the tax threshold you will be refunded any tax your employer has withheld.
Step 3: Calculate Tax
Once you know your tax rate, you can calculate your tax. You’ll need to work out the tax for each marginal tax bracket your taxable income includes.
For example, if you earn $80,000 you would calculate your tax as follows:
$0 – $18,200, Nil
$18,201 – $45,000, $5,092
$45,001 – $80,000, ($34,999 x 32.5%) $11,375
Total tax $16,467
That is how to calculate tax!
Tax offsets and the Medicare levy
Tax offsets reduce your tax liability. In fact, according to the ATO, a tax offset is;
“A sum that reduces the tax you pay (known as your tax payable) on your taxable income. Your taxable income is your total income minus any deductions you claim.” – The Australian Taxation Office
The most common over the period up to FY22 was the low and middle-income tax offset (LMITO). The low and middle-income tax offset (LMITO) was designed to ease the cost of living in Australia for low and middle-income earners. Ironic that it finishes as national inflation is at its highest point in decades. There are several tax offsets available in Australia, not just the low and middle-income tax offsets. Others include the seniors and pensioners tax offset, private health insurance rebate, super-related tax offsets, zone rebates, and foreign income tax offset to name a few.
Medicare levy is calculated based on your taxable income. Currently, the Medicare levy is set at 2% of taxable income.
For example: If Rick earns $50,000 for the financial year. He will be required to pay $1,000 ($50,000 x 2%) for the Medicare levy over and above his income tax bracket rates.
Using a Tax Calculator
Calculating your tax can be a daunting task, especially if you are not familiar with the tax system. Fortunately, there are several online tax calculators that can help you calculate taxes for your individual circumstances. These tax calculators are easy to use and can save you time and effort. They can also help you estimate your tax liability throughout the year, which can help with tax planning.
When it comes to working out your tax, it is important to stay up to date with how to calculate tax. A lot of people have the question of “tax how to calculate”, we hope this blog assists you staying on top of your tax.
Creating an Online Tax Account and Completing an Online Tax Return
At the end of the financial year, you need to complete a tax return. A tax return is used to declare your income and claim any deductions or offsets you are entitled to. You can do this by creating an online tax account with One Click Life.
To create an online tax account, you will need to provide some personal information, such as your name, date of birth, and tax file number. Your income will automatically appear in the online tax return, all you’ll need to add in is your tax deductions. Once you have completed your tax return and hit lodge it will submit with the ATO and you’ll get your tax refund.