While the Australian tax office (ATO) is cracking down more and more on erroneous and unprovable deductions for businesses, there is still a wide range of costs, expenses and losses you may be eligible to claim and reduce your overall income. The following is a guide to the top 10 most common tax deductions you should consider.
Expenses for owning and running a motor vehicle for your business can be claimed, although the type of deductions will vary depending on the type of business you have, the type of car and whether you use it for personal reasons as well. For example, if you own a business that has a company or trust structure, then you may be able to claim a deduction for the expenses of running the motor vehicle (as long as you retain all the necessary records). There are many disclaimers to the ATO’s rules on motor vehicles, and it would be advisable to speak to your accountant about what you can and can’t claim depending on your circumstances.
Again, deductions for travel expenses incurred for business are one of the most popular claims that the ATO receives. The number one rule about travelling fort business is that you must remember to keep as many records as possible, including airline tickets (with fare if possible), hotel receipts and other miscellaneous recepts. The ATO stipulates that travellers should use a diary to record trips of six or more nights away, and record information such as the reason for the business activity, the date and length of the activity and the name of the place where it was conducted.
Many people these days either run a small business solely from home, or use a home office in which to work part of the time. If your home is your place of business, and you have an area which is dedicated to work then you may be able to claim occupancy and running expenses such as rent, insurance and utilities (such as phone, internet and electricity). Even if you do work in another location, but still use your home office to conduct some business activities you may still be able to claim running expenses.
Claiming your employee’s salaries and superannuation payments will depend upon your business structure – for example, if your business is a company or trust then you may be able to claim a deduction for your staff’s payments. If your business has been set up as partnership, however, you will not be able to claim a deduction for a salary paid to any member of the partnership. If you are a sole trader, you may claim a deduction for a salary you pay to other employees, however you cannot claim a deduction for your own salary or wages.0
Just about every business that sends out invoices to clients runs into the problem of bad debtors from time to time. If it is unlikely that you’re going to recover the debt then you’re entitled to write it down or write it off entirely. By writing it off you can claim it as a deduction and if the debtor does eventually pay, you would have to claim the revenue in the future.
When you buy capital assets in the running of your business such as computers or plant and machinery, those assets depreciate in value over their working life. You are entitled to claim the depreciation of assets over time as a deduction and if you’re running a small business, there are simplified calculations that you can use to make managing your depreciation schedules easier.
Repairs and Maintenance
When you consider your equipment or plant and machinery, one thing that you are entitled to claim as a deduction is the expenses related to maintaining and repairing this equipment. You need to be careful that your claims are for repairing or maintaining the capital asset and that it isn’t a capital acquisition in and of itself.
Marketing and Promotional Costs
You need to grow your business and promoting your business through advertising and other marketing activities is a great way to achieve that. These expenses are legitimate deductions that you can claim back. One area that you may need to consult your accountant about is around entertainment expenses because while they may be marketing nature, there are also Fringe Benefits Tax implications that need to be considered.
Reduced Value and Damaged Inventory
For companies that carry inventory, it is quite common to have stock that gets damaged and is either no longer saleable or can only be sold at a reduced rate. Similarly, if you carry stock you’ll also find that the value of your unsold inventory may diminish over time. In both of these cases you’re entitled to a deduction for the reduction in value of loss related to your inventory. With respect to the reduced value of inventory, you’ll need to work with your accountant to establish the most tax effective valuation methodology.
Sometimes businesses operate at a loss and the tax office allows you to claim your losses as a deduction. To claim a business loss your total deductions in one year must be more than your assessable income, and if you do incur a loss, you may be able to carry it forward and claim a deduction for it during the next year. Claiming a deduction for losses will depend upon your structure, as there are different rules for the kind of business your operate. A sole trader, for example, will be able to claim a loss against other income.
Don’t forget that if it’s not recorded – either in electronic or paper format – your work-related claim will not be considered valid. It is always best to keep all of your records and if possible make notes for yourself about the nature of the expense when you incur it so that you don’t forget. Then when it comes time to work with your accountant on your tax filings, you’ll be able to provide good information and get the best result for your business.
If you want to see how you can minimise your taxation and maximise your deductions then contact us here.