Top 8 Tax Deductions Australian Lawyers Must Not Miss in 2024

If you are a lawyer in Australia, getting confused during the tax period is absolutely normal. You have long working hours attending to clients, going to court cases and tending to several other assignments. And when tax time comes, you try to relate it with your neighbour’s, and it's not correlating. This is because the tax return requirements for other professions differ greatly from yours as a lawyer. For this reason, we have prepared this guide to help you navigate your tax return thoroughly. This will help you know what you are eligible for and what not. This article will explain several deductions you can claim as a lawyer and how to go about it. Let's get started.

Understanding the marginal tax rate for lawyers

Because of its progressive tax structure, Australia requires its citizens to pay a greater proportion of their income in taxes as their level of income increases. You are exempt from paying taxes on earnings up to $18,200 for each fiscal year. The following are the tax rates that will be in effect for residents for the fiscal years 2022–2023 and 2023–2024 (please note that these rates do not include the Medicare levy):

Taxable income $	Tax payable $
0 - 18,200	Nil
18,201 - 45,000	Nil + 19% of the excess over 18,200
45,001 - 120,000	5,092 + 32.5% of the excess over 45,000
120,001 - 180,000	29,467 + 37% of the excess over 120,000
180,001+	51,667 + 45% of the excess over $180,000

The lowest rate is 19%, and the maximum rate is 45%. However, it only applies to incomes over $180,000. The majority of people in Australia fall somewhere in the middle group.

Why lawyers must always document expenses

The ATO believes the information you provide during tax is correct because the tax system in Australia is based on self-assessment. Your claims for deductions may be rejected (removed from your tax return) if they evaluate your tax return and find that you failed to provide proof to substantiate the deductions you claimed. Maintaining accurate records as a lawyer is very important for you, and here are some reasons:

• It serves as proof of your income and expenses.
• It ensures you can get every deduction and credit you deserve.
• It prepares you to give evidence supporting the statements made on your tax return if requested.
• Minimises tax inspections and corrections.
• Bolster your ability to communicate with the ATO.
• Find solutions to problems about disagreements over your assessments or changes.
• Avoid tax penalties.

Maintaining accurate records lowers the expense of handling your financial and tax issues. If you work with a tax professional, you can reduce their time organising and preparing your documents for review. Because of this, they will have extra time to verify that you have claimed all of your benefits. 

3 Tips for lawyers who want to save on taxes

Lawyers deserve some saves on their taxes and here are three tips you can follow to do this.

1. Have hard copies of books

Your physical books could be worth a tax deduction, even though storing eBooks rather than hard copies could free up more space to store other things. A tax deduction can be claimed for the value lost over time in hard copies of law texts. This is comparable to how you can claim the depreciated worth of your work computers or luxury vehicles used for business. You can give money away if you sell those legal books or give them away as a donation.

2. Have great retirement plans

Establishing functional retirement funds is another way lawyers can reduce the money they pay in taxes.
The proprietors of law firms have three retirement plan alternatives: a SIMPLE IRA, a SEP IRA, or a 401(k). You and your company must choose the most effective one because doing so could result in instant tax savings.

8 Crucial tax deductions for lawyers

A lawyer in Australia is eligible for different tax deductions and credits. Below are eight important tax deductions you can claim.

1. Business Meals

Even if you don't have all of your receipts, you may still be able to get a deduction for your overtime hours, provided you meet the following criteria:

• Under the industrial award or the law, you are entitled to be compensated with a lunch allowance for working overtime.
• You are not asking for more than what may be considered acceptable.

2. Car Expenses

You are eligible to submit a claim for the money spent travelling from your workplace for the following reasons:

• You need to go to court,
• See a client,
• Or work a second job,

You cannot deduct the costs of travelling to and from your place of employment. If you must transport heavy equipment as part of your job obligations, you can be eligible for a deduction for the money you spend travelling from your house to your workplace. However, this deduction is only available in certain situations. To be eligible for this, you must first satisfy several predetermined requirements.

3. Educational Costs

If your course is directly related to your job as a lawyer, it

• Maintains or develops the skills and information you require for your current obligations.
• Results in or are likely to result in increased income from your current work, then you are eligible to claim expenditures related to self-education and study.

Examples of things that count toward your ongoing professional development (CPD) points include attending training, seminars, or conferences.

4. Office Supplies(newspaper, magazines)

Only if you can establish the following are you eligible to claim deductions for professional periodicals or magazines:

• The contents of the journal or magazine are not generic but specific to your place of employment.
• A straightforward relationship between the material and the many tasks involved in the job.

5. Travel Expenses

If you must stay away from home overnight as part of your job responsibilities, such as travelling to another state to defend a client before the High Court of Australia, you can submit a claim to reimburse your lodging and transportation costs. When you travel for work, you may incur various expenses along the way, some of which are considered travel expenses and include things like food, lodging, and airfare.
You are not immediately eligible for a tax deduction simply because your company provides you with a travel allowance. You still need to provide evidence that you spent the night away from home, that you spent the money, and that the travel directly correlated to the revenue you generate from your job.

6. Clothes Expenses

If the clothes you purchase, rent, mend, or clean are occupation-specific, meaning it clearly and unmistakably identify you as a member of a certain profession, then you are eligible to deduct the costs associated with doing so. Take, for instance, the robes worn by a judge. If your employer pays for or reimburses you for certain expenses, you cannot claim a deduction for them.
Even if your employer requires you to wear conventional clothing and you only wear these items of clothing at work, you are not allowed to deduct the expense of buying, renting, repairing, or cleaning the conventional clothing you wear for work. The term "conventional clothing" refers to the clothing that individuals wear regularly, such as business dress, which may include a suit, tie, and cufflinks.

7. Working from home expense

When you work from home, you can deduct some expenses as long as they are directly related to your job. You must apply one of the outlined procedures to compute your deduction. Ensure that you keep accurate records of the method you utilise.

8. Other Expenses

You are eligible to deduct the proportion of additional employment-related expenses that pertain to your job, such as:

• The cost of maintaining your annual practising certificates.
• Any costs associated with driving your car for work-related reasons, such as tolls and parking fees
• Costs associated with the Supreme Court Library
• Insurance for the protection of professionals
• Dues paid to trade groups and industry associations.
• Publications that are considered to be professional.

What can't I claim?

You can't claim the following deductions as a lawyer in Australia:

• Membership dues or sponsorship payments to any social or sporting clubs, even if you utilise these activities to manage customers or professional relationships.
• Any form of entertainment, whether a business meal, a sporting event, or a concert (even if you speak business while you're there), is considered business entertainment.
• The cost of any meals or snacks consumed throughout a normal work day, even if your employer provides an allowance to cover the cost of meals for you to use during the work day.
• Any educational costs that are not immediately associated with your current line of work, such as if you are working as a legal secretary but going to school at night to become a lawyer so that you can switch careers in the future.
• The monetary value of any presents or cards that you buy for customers.
• Any fees associated with defending oneself if you are barred from practising your profession
• Any costs associated with grooming, such as going to the hairdresser or purchasing makeup items, even if your job requires you to show yourself professionally.
• Any costs incurred when travelling between your house and your place of employment, regardless of how far away you live from both locations.

4. Record-keeping requirements for lawyers in Australia

Record keeping is essential to claim deductions in Australia. If your records aren’t complete or found, you may be unable to claim what you are eligible for.

1. Your records must not be changed or damaged

You are not allowed to alter any of the pertinent information in your records (for instance, by using electronic sales suppression techniques), and the records themselves need to be stored to prevent the information from being altered or the record itself from being damaged. You should show that you have sufficient precautions in place. If your method of record-keeping evolves, you must be able to recover the data from its initial state.

2. You need to keep most records for five years

In general, the period you are required to keep each record begins with the date on which you prepared or got the record or the date on which you completed the transactions or acts that those records pertain to. The law provides that the beginning of the five-year retention period may begin differently in certain circumstances.

3. Ability to show them on request

If the Australian Taxation Office or the Australian Securities and Investments Commission (ASIC) requests a hard copy of your record, you must be able to supply one from your electronic record-keeping system.

4. Your records must be in English or easily converted to English

Only English is acceptable as the language for all your records for your tax return in Australia. However, it should be easily converted to English if it's outside of English.

The best way to keep your records for tax purposes

Keeping accurate records is a time-consuming and demanding task. Establish a method of record-keeping that is suitable for your needs. Simplify your paperwork by producing an electronic copy of everything you want to preserve. You can do this by scanning the documents you want to save and storing them in a file on your laptop, on a flash drive, or in the cloud. This will save you a lot of space.
Because laptops and flash drives might become corrupted or go missing, it is essential to maintain copies of your most important documents in the cloud and/or in some other location(s). In addition, even if you have electronic records, you should keep the paper ones in case you need them. If you or your heirs need those things in the future, having them now could save you a lot of work.

5. Common tax pitfalls for Australian lawyers

Everyone makes mistakes, and being a lawyer doesn't stop you from making one. It's better you know the mistakes you are likely to make so it will be easier to avoid them. Below are common tax pitfalls for Australian lawyers

1. Not lodging your returns on time or too early

When the first of July rolls around, those who are exceptionally well-prepared cannot contain our excitement to start working on our taxes. If I understand correctly, the sooner you file it, the sooner you will receive your return. Having such a high level of preparedness doesn't always pay off, which is unfortunate. Because it takes some time for the ATO to receive all your information, you risk not receiving certain information if you submit your return too early.

2. Not getting your tax returns right

As a lawyer in Australia, you can easily make mistakes if you aren't familiar with your tax filing. It might be putting the wrong income or trusting the ATO pre-filled information. This can sometimes be a problem during your tax return. Ensure you get your tax return right. Double-check and hire a professional if you don't want to make mistakes.

3. Not focusing on ATO requirements

ATO always has new requirements and changes every year. Most lawyers have the previous year's requirements in mind and forget to check the new fiscal year changes. This can cause a lot of mistakes during your tax filing. Before filing your taxes, check the ATO's website for updates.

4. Claiming the wrong deductions

Only actual expenses are eligible for reimbursement. Don't overstate deductions in hopes of getting a larger return, and don't claim money you didn't spend unless you have the documentation to back it up. When taxpayers prepare their returns using the ATO's myTax software, the agency's computers keep an eye out for any signs of over-claiming on the taxpayer's part.
MyTax will warn you if your deductions don't add up after the ATO's computer systems compare them to those of others like you. If you disregard this warning, you may be subject to an audit. You will have to pay back the tax you avoided, plus interest, if it turns out that you falsely claimed a deduction. The ATO interest rate is 3% over the current rate for 90-day Bank Accepted Bills and is computed on a daily compounding basis. The Australian Taxation Office (ATO) may assess a penalty of 25% to 95% of the tax evaded if it determines that your actions were reckless.

5. Leaving out some of your income

Forgetting about the money you made through a part-time job or a side hustle is a significant problem, and the ATO is coming down on it. If you made money by babysitting, pet sitting, or doing freelance work in addition to your full-time lawyer job, you must include all of this in your income when lodging. The ATO knows these side jobs and compares data from sites like Uber, Airbnb, and Airtasker to individual tax filings.

Getting your tax deductions with a reliable tax agent

Identifying and claiming the appropriate tax deductions is absolutely necessary for Australian lawyers who wish to achieve the highest possible returns on their work. The intricacies of tax law can be intimidating, but with the assistance of a tax agent, you can easily navigate through it without any difficulties. At The Kalculators, one of our primary areas of expertise is comprehending the tax consequences relevant to legal practitioners. Our team is committed to ensuring that you do not miss out on any qualifying deductions, which will ultimately put more money back into your pocket.

Frequently asked questions

How do I report income from legal consulting or expert witness services?

In Australia, income from legal consulting or expert witness services is generally reported as business income. This should be included in your Business and Professional Items schedule when lodging your tax return.

Are there deductions for legal professionals who also engage in teaching or lecturing?

Yes, legal professionals who teach or lecture in Australia may be eligible for deductions related to their educational activities. This can include materials, travel, and other costs directly associated with teaching. Accurate records should support these.

What are the rules for deducting expenses related to client entertainment?

In Australia, there are specific rules regarding entertainment expenses. Generally, only 50% of the expenses related to client entertainment are deductible. It's important to keep detailed records of the entertainment expenses, including who was present, the purpose of the meeting, and the nature of the entertainment.

Can I claim deductions for professional development courses not related to law?

In Australia, you can only claim deductions for professional development courses that are relevant to law. This includes courses that help maintain or improve your skills, even if they are not directly related to law.

What expenses can I deduct if I work as a sole practitioner versus in a firm?

Sole practitioners in Australia can deduct expenses related to the full operation of their practice. This includes office rent, utilities, office supplies, marketing costs, and professional dues. In a company, expenses may be shared among partners or covered by the colp.

Are there specific deductions available for barristers or solicitors?

In Australia, there are specific deductions available for barristers or solicitors. These can include deductions for professional fees, licensing fees, and expenses directly related to the provision of legal services.

How do I handle tax deductions if I operate a legal practice from multiple locations?

You can deduct expenses for each location if you operate a legal practice from multiple locations in Australia. This can include rent, utilities, and other expenses necessary to maintain those offices. Each location's expenses should be accurately recorded and reported.

What are the tax implications for legal professionals with overseas clients or cases?

Legal professionals in Australia who work with overseas clients or handle cases abroad may have additional tax implications. This can include considerations for foreign income, and it's advisable to seek advice from a tax professional with expertise in international tax law.

Can I claim a deduction for expenses related to legal software or technology?

Legal software or technology expenses in Australia can generally be business expenses. This includes costs for legal research platforms, practice management software, and other tools necessary to operate your legal practice.

Are there special deductions for legal fees or court costs?

Legal fees and court costs incurred during business in Australia are generally deductible. However, fees related to personal legal matters are not deductible.

Can I claim expenses for pro bono or volunteer legal work?

While you cannot deduct the value of your time for pro bono or volunteer work in Australia, you can often deduct any out-of-pocket expenses incurred in providing these services. This can include travel expenses or court filing fees.

How do I report income from legal settlements or awards?

Income from legal settlements or awards in Australia should be reported as "Other Income" on your tax return. However, it's essential to consult with a tax professional to determine the correct reporting method based on the specifics of the settlement or award.