I'm trying work out the difference between claiming an expense at work vs tax deduction come tax time.
Given the below scenario, which option will result in higher net balance after tax return?
$80,000 before tax
Help repayments required (not sure if relevant)
$500 spend on work related clothing for the past financial year.
I don't really understand the math behind it so would really appreciate some help from the OzBargain community.
However, if you have the option of expensing it to work, that is better because the $500 item would then cost you $0 instead of $337.50.
Deduction: reduces your taxable income by the amount of the deduction (in this case, $500). So you get back the tax you would have paid on the $500 salary between $79,501 and $80,000, which as Nugs said is $162.50 at 32.5%.
So you get assessed on $79,500 and pay $162.50 less tax, but pay $500 for work clothing.
Expense: work pays for the entirety of the cost
So you get assessed on $80,000 and pay the extra $162.50 in tax, but don't pay $500 for work clothing. You end up with an extra $337.50 thanks to work paying for it.
Bottom line is a tax deduction can only ever get you back whatever marginal tax rate you are in at the top end of your salary (or possibly less), where as someone else paying for something for you means you pay more tax but end up with more money. If work wants to pay for something, let them pay!
Also tax deductions on work clothing typically need to be quite specific so ensure if you do want to do that, you are eligible.
Thanks all. I'm gonna see if work will be willing to cough it up instead then.
Just make sure you don't double dip like some people do…
If the clothing is PPE and you are an employee then the employer is obliged to supply / pay for.
Deduction (half the answer);
In your scenario, you would pay tax on $79500 instead of $80000. At the marginal tax rate of 32.5%, you pay $162.50 less tax than you would if you did not claim, so the $500 item(s) cost you $337.50.
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