What if there’s a way to reduce the amount of taxes you’re paying? In this article, we’ll explore the different types of tax deductions you can claim and the requirements you’ll need to qualify for these deductions.
Before heading on to the list of expenses and deductions you can claim, let’s review first the general rules you should follow:
There are certain expenses you can’t deduct. Here are some examples:
By knowing the basic rules in claiming your deductible expenses, as well as the expenses you can’t claim, you can budget your finances properly.
Figuring out all available tax deductions helps you lower your business expenses. While it’s just a small step, it can still create a positive impact on your financial health. See the list below to know the common areas where you could work out your taxes.
Operating expenses (also known as working or revenue expenses) are the costs you incur from your daily business activities. It is divided into five categories:
Traveling for business entitles you to claim deductions for your expenses such as:
However, if you travel for both business and personal reasons, you can only deduct all expenses made for business purposes. Personal activities such as sightseeing, buying souvenirs and gifts, and visiting family or friends are non-deductible.
Moreover, any travel expenses you have before the actual start of your business, even if it’s made for business purposes, can’t be deducted.
For employees who travel to represent your business, you must shoulder their travel expenses so you can claim them as deductions. You can either pay directly for their expenses using your business’ account, allocating a travel allowance, or reimbursing the employee for all business-related expenses made.
You should also keep essential records like official receipts, boarding passes, tickets, tax invoices, and travel diaries. Keeping a travel diary is crucial to justify your claims, especially when separating expenses made for business and leisure activities.
Operating some or all of your business operations from home qualifies you to claim tax deductions.
This home office expenses calculator will help you compute your allowable deductions. You can also ask for the assistance of your accountant to make the calculations easier and more accurate.
Note: The Australian government allows the use of a temporary shortcut method for claiming home office expenses deductions until 30 June 2021. Using this method, you can claim a rate of 80 cents per hour for all your running expenses instead of calculating the actual costs.
If you use motor vehicles to carry out your business activities, you should also keep good records of all expenses you’ve incurred to claim your tax deductions. Here are some examples:
Check this page to find out which calculation method applies to your business structure.
There are expenses you can’t claim right away as tax deductions. It can be classified as:
Tax concessions are the tax reliefs granted by the Australian government to eligible small businesses to reduce the amount they’re supposed to pay. Each type of tax has an available concession specifically for small businesses.
If you’re a small business owner, being aware of these concessions can boost your cash flow and enable you to make better asset investments and financial decisions.
Like concessions, tax offsets (or rebates) also reduce the cost of your taxable income. It has four main types:
Loss carry-back tax offset - available for businesses that claimed a tax loss in past years.
The process from tax preparation to lodging takes a lot of time, effort, and patience. You have to make sure you aren’t missing any important details, like these seven tax deductions, to ensure you’re paying the right amount.
Instead of doing the taxes by yourself, get some help from a certified tax accountant. You’ll not only remove this burden off your shoulders but you can also have the confidence that all essential tax information about your business is carefully accounted for. Plus, the service of an accountant is tax-deductible — letting you achieve the best of both worlds.