Everyone has tax obligations and must part with a percentage of their income at the end of every year. Business owners have additional tax burdens based on their business process and profit. They need to examine their expense and income carefully and determine how much they need to pay every year. However, most business owners aren’t aware that they can save money on tax with tax deductions.
What is a small business?
Before you look at possible tax deduction options, you need to know whether your business is legally considered a small business. According to the government, businesses that have an annual turnover of $2 million or less are considered small. All of your businesses, including connected and affiliated ventures, are included in this bracket. This means you can’t split your business in order to remain under the $2 million mark.
Tax deductions you can claim
As a business owner, you know that you need to spend money to make it. A large portion of your income is funneled back into your business to pay for essential business expenses and to generate more income. You can get tax deductions for most of the money you cycle back into your business. Many small business owners attempt to abuse this system and claim deductions for frivolous and unneeded expenses. Conversely, many miss opportunities to deduct tax and end up paying more than they need to. Here is a list of tax deductions most businesses can lay claim to:
- Advertising and sponsorship – Advertising raises awareness of your brand and brings customers to your doorstep, which generates income and profit for your company. Any investment you make towards advertising is tax deductable because it is an essential business expense. You also get tax deductions for advertising during the recruitment process, as hiring employees is also an essential business expense.
- Business-related travel – Travelling for business can be an expensive affair, especially if you need to travel to distant locations on a regular basis. As this travel is needed to help generate income, the expenses are deductable. You just need to maintain a clear record of your expenses. Preserve all your receipts, keep copies of your itinerary, record all your expenses and provide reasons for your travels. All of these expenses will be tax deductable. Make sure you don’t include any expenses that are counted as entertainment. For example, if you visit a different country and attend a concert during the business trip, you can’t claim deductions for the money you spent on the concert.
- Bad debts – Small business owners often struggle with bad debts, especially when they’re first starting out and have problems with cash flow. Some business debts have to be written off because business owners simply don’t have the resources to pay back the debt. This debt should be included as accessible income in the current year or previous year’s statements. It should also be written off as bad in the same year in order to claim deduction.
- Borrowed money – If you need to borrow money you can claim deductions on that. You just need to prove that the money you borrowed helps provide accessible income to your business. Expenses on borrowed money can be legal costs, valuation fees, overdraft guarantee fees, registration fees, etc. These deductions are different from the deductions you get for paying interest on borrowed money, so make sure to claim both.
- Commute and car expenses – You can claim deductions for all car-related expenses including fuel, repairs, maintenance, lease costs, loan costs, etc. This is if the car is used solely for business purposes. You can also claim some proportions of car deductions if your business is a partnership or a sole-trader venture. However, there are some rules and regulations you need to consider before you claim this, so it’s a good idea to hire a financial advisor to help you.
- Fringe benefits – If you provide fringe benefits to your employees, it’s considered a business expense and you can get tax deductions on it.
- Repairs and maintenance – Repairs and maintenance of your commercial property is an essential business expense and helps generate income as well. You need to make sure these expenses aren’t considered “capital costs.” You can claim deductions for thing like painting, plumbing, cleaning, up-keep, machine servicing and maintenance.
- Insurance – A number of insurance schemes are tax deductable as they’re considered essential business expenses as well. For example, you can get deductions for Worker’s Compensation, fire, public liability, vehicle, theft and loss of profit insurance premiums.
- Superannuation funds – You get deductions for contributions you make to your employee’s superannuation funds. You can also get deductions for your own superannuation funds.
- Salary – Salaries and wages paid to employees and workers are tax deductable because they contribute towards your company’s revenue and profit. However, you need to keep in mind that all salaries are connected to your business and generate profit for your business. Sole traders can’t claim salaries paid to themselves.
- Telephones – You can claim the call-related and rental expenses of your business telephone in your tax deductions. You can’t claim the installation costs or any private calls you make on the same device. If you use the phone for both private and business calls, you’ll have to determine how much you pay for business related calls and get tax deductions on that amount.
These are just a few of the many tax deductions you can get as a small business owner. It’s a good idea to hire an accounting professional to determine what kinds of tax deduction are applicable to you. They can give you advice based on your particular financial circumstances and help you plan for the upcoming year as well. Make sure you find an accountant who is familiar with small business operations and finances. They will be familiar with recent tax regulations and know where to find opportunities to reduce the tax burden