“What can I write off when it comes to tax time?” is one of the questions that accountants hear most from small business owners. The answer: pretty much all costs legitimately incurred in running a business.
For businesses in the construction, transport or agriculture industries, this means staff wages, equipment, business travel expenses, marketing, and business administration costs are all tax deductible. The only expenses that can’t be claimed are fines and personal expenses.
Given the broad scope of small business tax allowances you want to be sure your business is on the front foot come tax time and makes the most of all legitimate deductions. The basic rule to avoiding any queries or investigation by the Australian Tax Office (ATO) is to show you are actually ‘out-of-pocket’, and that the expense has been incurred to run your business.
Deductions, deductions, deductions
When it comes to running your business, common deductions include accounting, bookkeeping or business activity statement (BAS) preparation, as well as general advertising and marketing costs. If you work from home you can usually claim deductions for phone, insurance and a portion of running expenses like heating, lighting or cleaning. If you employ staff, you can deduct wages, bonuses and commissions and contributions to employee superannuation.
Travel for business purposes can usually be claimed – be sure to keep all receipts, tickets and your itinerary or diary. Note the nature of the travel, its purpose, and where, when and for how long (and look out for any personal activities that are mixed in as these expenses are non-deductible).
You can claim a full deduction for any business vehicle expenses, either leased or owned. Larger owned items like cars or even buildings can also be claimed over time as depreciating assets. You may also be able to claim (over a five year period) certain capital costs in setting up or closing a business, as long as an outright deduction cannot be claimed for that expenditure.
A deduction is available for the upkeep of equipment or premises used to produce business income (provided they are not ‘capital’ costs, which would be captured as depreciating assets). These deductions include things like painting, plumbing and electrical maintenance, upkeep to windows and fences, guttering and machinery maintenance. Generally it means fixing defects, not totally replacing an item, and does not include improvements or work done immediately after acquiring an asset.
Confirm with your landlord and accountant for what you are liable for and if you are able to claim these deductions.
Some commonly overlooked deductions include bank fees and charges related to your business account, interest on business loans or overdrafts, as well as franchise fees that are not part of any initial purchase. Another deduction you may not be aware of is unpaid debt. A ‘bad’ debt is an allowable deduction as long as it was included as assessable income in the present or even a previous income year, and that it is written off as bad (uncollectable) in the same year that a deduction is claimed.
These are just some of the deductions available; however, every business is different so it’s a good idea to consult a professional tax advisor or accountant.
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Get your ducks in a row
One of the common pitfalls that face small business owners come tax time is leaving everything to the last minute and not keeping adequate records of expenses.
Especially in the rush and panic of getting off the ground, new businesses forget to accurately track all expenses. Good record keeping is your best friend for efficient business management and will also make life easier if the ATO ask you questions.
Tax law requires that records be kept for five years, and they should include all receipts and invoices, bank statements, employee records, vehicle records, asset purchases and lists of debtors and creditors.
The days of paper piles are over for many small businesses, by using digital bookkeeping software and apps, such as SmartBooks Online or Intuit QuickBooks, businesses can easily store and access all financial and tax records.
The powers of deduction
Running a small business in a competitive industry means every dollar counts. To remain in front and maintain a healthy bottom line, businesses need to be smarter and sharper every financial year.
“Even if a small business owner thinks they know all about tax deductions, they’re usually wrong,” warns small business specialist accountant Chris Wheatley.
“It’s a very complex area where laws and regulations change frequently, so advice from your uncle who owns a business is likely to be incorrect or out of date,” he says.
“The best way to ensure you can make the most of your business tax return transparency is to get the right tax advice early on in the game.”
Disclaimer: This information should be used as a guide only. GoGetta does not provide legal, tax or accounting advice. Please seek advice from a qualified professional tailored to your situation.
Rather than your stereotypical accountant, Chris is someone you can have a normal conversation with and use as a sounding board. As a chartered accountant, tax compliance is his bread and butter, but he is also passionate about other areas like advisory work for small businesses who want someone hands on and practical.
07 3103 6158