I love paying taxes. Said no one ever. Indeed, we all welcome tax deductions and always look for ways to reduce our taxes whether as in individual or as an operator of a small business.
Fortunately, you can claim deductions for many of your business expenses. Here’s the list of tax deductions you can claim for your small business.
1. Travel Expenses
You can claim tax deductions for when you or your employees travel for business. Airfares, train, tram, bus or taxi fares are all tax-deductible. For overnight travels, you may also claim hotel accommodation and meal expenses.
2. Asset Depreciation Write-Off
Claim immediate deductions for assets using the simplified depreciation rules. If you purchased assets and first-used or installed them ready for use from a particular date, you can immediately claim tax deductions for each asset costing less than:
- $20,000 until January 28, 2019 (purchases from 7:30 pm AEST May 12, 2015)
- $25,000 until before 7:30 pm AEDT April 2, 2019 (purchases from January 29, 2019)
- $30,000 until June 30, 2020 (purchases from 7:30 pm AEDT April 2, 2019)
3. Homebased Business Tax Deductions
If you’re operating your small business from home, you can claim the business portion of your expenses, including mortgage interest and electricity.
Take note that should you decide to sell your home, the sale will trigger a CGT event if you decide to claim mortgage interest and it must be declared in your tax return.
4. Operating Expenses
Expenses you incur in the running of your business may be claimed in the same income year you incur them. Some common operating expenses are:
- purchases of trading stock, including delivery charges
- advertising and sponsorship costs
- public relations expenses
- legal expenses, such as those incurred defending future earnings, borrowing money, discharging a mortgage or obtaining tax advice
- tender costs, even if the tender is unsuccessful
- bad debts
- bank fees and charges
- insurance premiums, including accident or disability, fire, burglary, professional indemnity, public risk, motor vehicle, loss of profits insurance, or workers compensation
- interest on money borrowed for
- producing assessable income or purchasing income-producing assets
- income tax obligations, employer super contributions, or late payment or lodgment of tax
- luxury car lease expenses
- stationery expenses
- costs for running a commercial website, such as site maintenance, content updates and internet service provider fees
- subscription fees for off-the-shelf software
- transport and freight expenses
- waste removal and recycling expenses
- parking fees (but not parking fines)
- small-value items costing $100 or less.
5. Small Business Income Tax Deductions
Aside from lower company tax rates, small businesses are also eligible for other tax concessions. Make sure you are a small business entity according to the ATO’s definition so you can enjoy the following:
- Small business income tax offset. You can claim a tax offset on your tax payable for your net income from 5% to 8%. This will increase to 13% in 2020–21 FY, and to 16% from the 2021–22 FY.
- Fencing and water facilities depreciation deduction. You can claim an immediate deduction for the costs from May 12, 2015.
- Fodder storage depreciation deduction. You can claim an immediate deduction for the costs from August 19, 2018.
- Start-up expenses. Just starting your small business? Don’t worry, you can claim tax deductions for professional, legal and accounting advice and government fees and charges.
- Prepaid expenses. Claim immediate deductions for prepaid business expenses where payment covers 12 months or less and the next income year.
6. Capital Gains Tax Reductions
As a small business with a turnover of less than $2 million, you may be eligible for CGT concessions on “active assets” you used for your business.
You can get a CGT exemption if you’re 55 years or older and you sold an asset you owned for at least 15 years. The ATO calls this ’15-year exemption.’
You can also get a ‘50% active asset reduction’ and ‘retirement exemption’ where an active asset may be exempted from CGT for up to a lifetime limit of $500,000.
If you’re under 55, the exempt amount must be paid into your super of a retirement savings account.
7. Fringe Benefits Tax Deductions
A small business may claim tax deductions for fringe benefits like parking and electronic devices such as cellphone, laptop, tablets, etc.
8. Super Concessions
If you have 19 or fewer employees and your turnover is under $10 million, you may be eligible for super tax deductions and get access to the Small Business Superannuation Clearing House which can help you pay super guarantee contributions for all your employees in a single electronic transaction.
Take note that if you’re operating from your home, only the business part of the expenses can be claimed. A tax advisor can help you identify expenses that you may be eligible for. A tax accountant can also make an efficient system for keeping and recording expenses you may be eligible for.
If you don’t have an accountant, make sure you keep accurate and complete records of all your income and expenses to make sure you can claim all tax deductions available to you as a small business.
Need tax advice for your small business? Contact a Chan & Naylor accounting specialist here.
Aside from small business tax assistance, have a look at our other accounting and advisory services designed to help you achieve greater financial success.
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