As a small business owner there are a number of deductions you can claim in order to increase your tax return. Of course, the important part is knowing what you can and cannot claim.
Whether you are submitting your tax return yourself, or handing over the details to your accountant, here are the most important deductions to keep in mind.
Business Travel Expenses
As a business owner, you may be able to claim deductions on various expenses that you (or your employees) incur during a business trip.
Below is a breakdown of the most common business travel expenses you can claim:
- Train, bus, tax, and ride-sourcing fares
- Accommodation, and
There are some travel expenses you are not allowed to claim. This applies even if the expenses were incurred during the course of a business trip. The travel expenses you generally cannot claim are:
- Going on holiday, or paying a visit to family and friends
- Souvenirs and gifts
- Any expenses that you (or your employee) incurred while taking a friend or family member on the trip.
- Sightseeing, entertainment, and leisurely activities
- Visas, passports, and travel insurance
When an employee is required to go on a business trip, there are a few ways that your business can cover the cost of the trip. You can either: i) Pay for the expense directly from the business account, ii) Pay a travel allowance to the employee, or iii) Reimburse the employee for their travel expenses at a later date.
If you’re a sole trader, and you go on a business trip that lasts for six or more consecutive nights, it is compulsory for you to keep a travel diary. The travel diary must contain written evidence of the dates, places, times, and duration of your activities and travel. If a portion of the trip was dedicated to personal activities, you should still maintain a record of such activities, but you can only claim expenses which relate directly to the business.
Home Office Expenses
If you operate a business from home, even if it is only a portion of the business, you may be able to claim a deduction on various home-based expenses, such as:
- Occupancy expenses
Rent, mortgage interest, council rates, land taxes, and home insurance premiums
- Running expenses
Utility bills (i.e. electricity, water, and gas), internet, home phones, mobile phones, declining value of plant equipment along with furniture and computers, cost of repairs to furniture and equipment or computers
- Motor vehicle trips
Any trips you take from home to other places that relate directly to the business earning an assessable income.
When you calculate your home-based expenses, it is important that you distinguish between expenses that relate to the business earning an income, and expenses that relate only to private use. Even if your home is not the principal place of business, but you do some work from home, you may be able to claim a deduction on expenses you incur while you work at home.
For example, you are a painter who primarily works at other people’s premises. But you do all your bookkeeping at home and you also store tools, materials, and equipment at home. In this case, you may be able to claim a deduction on expenses you incur for just those parts of the business.
Simplified Depreciation – Are You Eligible?
As a small business owner, you are entitled to an exclusive tax write-off rule known as Simplified Depreciation. This rule allows small business owners to immediately write-off assets that cost less than $20,000 in a single income period.
In contrast, tax paying entities that do not qualify to be considered a small business must apply general asset depreciation rules, where they gradually write-off any asset that costs more than $100 based on the estimated life expectancy of the asset.
To be eligible for the Simpler Depreciation rule your business must have an aggregated annual turnover of less than $2 million. Even if you have unknowingly been able to use the Simpler Depreciation rule, but you have not done so in previous financial years, you can adopt the Simpler Depreciation rule at any time.
General Operating Expenses
There are a range of operating expenses you incur on a daily basis, which vary considerably based on the nature of the business. However, as long as the expenses relate to your business earning an assessable income, you may be able to claim a deduction on them.
Some of the most common operating expenses you may be able to claim, include:
- Advertising and sponsorship
- Work clothing and outdoor protective gear
- Banks fees and charges
- Purchasing trading stock, including delivery charges
- Legal expenses – i.e. the cost of preparing, registering, and stamping a lease for you property to intend to use to earn an income.
- Tender costs – even if the tender is unsuccessful
- Business insurance premiums
- Office stationary
- Costs for running a commercial website, including site setup, site maintenance, domain registration, content updates, and internet service provider fees.
- Parking fees – excluding parking fines
- Waste removal and recycling
- Financial losses from any previous financial years
- Small value items that cost less than $100
Of course, these tax-deduction ideas are merely a general guide. You may be eligible to claim deductions that relate specifically to your field or industry.
If you feel you may be paying too much tax, or you’re in your first year of business and you want to be more informed on your tax liabilities, speak to a business accountant today. They can assess the unique circumstances of your business, and offer valuable insight and advice to help increase your business’ tax returns.