Maximising Your Bottom Line: A Guide to Business Expenses and Tax Deductions
Are you claiming all the business expenses you can to minimise your tax?
Knowing what you can claim as business expenses can help you minimise your assessable income when paying taxes. However, many business owners overlook business deductions and pay more tax than necessary. Here’s an overview of what you can legitimately claim as business expenses to maximise your deductions and minimise the tax you pay.
What can you claim as business expenses?
The costs incurred in running a business are tax deductible, meaning they decrease the profit you are taxed on. Common examples of deductible business expenses include:
Accounting and bookkeeping services
Advertising and public relations
Bad debt (for accrual accounting)
Bank fees and charges
Books and magazines
Building and maintenance
Business travel
Commissions and fees
Depreciation
Donations – to organisations that are deductible gift recipients (DGRs)
Education and training
Freight and transport
Insurance premiums – including public and product liability, professional indemnity, fire and theft, tax audit, and income protection insurance
Interest on business debt
Lease expenses – including leases for premises, equipment and machinery, computers, motor vehicles
Mobile and landline telephone
Motor vehicle expenses
Office supplies
Professional memberships
Salaries and wages
Superannuation contributions for employees and certain contractors
Software
Statutory fees, such as ASIC fees
Utilities.
Remember that the deductions you claim need to be on business-related expenses, not personal ones, and you need to keep records of your expenses. If the expense is for a mix of business and personal purposes, you can only claim the portion that is business related. For example, if you combine a business trip with a holiday, you can only claim tax deductions for the business portion of the trip (see more on business travel below).
Instant asset write-off
While temporary full expensing is no longer available, you can still write off the full amount of an asset up to $20,000 in the financial year it was purchased, delivered and installed. Assets above $20,000 need to be depreciated over several years. For example, 25% of the original price each year for four years. The depreciation schedule will depend on the type of asset, so it will help to consult an accountant when determining how much you can depreciate each year.
Motor vehicle tax deductions
The motor vehicle tax deductions you can make will depend on how you use the vehicle (business and personal use).
Motor vehicle business expense deductions include:
Depreciation
Fuel
Insurance
Lease payments
Vehicle loan interest
Registration
Servicing and repairs.
You can’t deduct motor vehicle expenses for commuting between your home and place of business and private use, while you can deduct your expenses for travel between your business and other locations you visit for business purposes.
Business travel expense deductions
You can claim business travel expenses, including air, rail, business, taxi and ride-sourcing fares. When travelling overnight for business, you will need to keep records of the costs you incur. When travelling for business for more than six consecutive nights, you will need to document:
The types of activities during your travel
When business activities began and how long they lasted
Where the business activity occurred.
On a sales trip, for instance, you could keep a diary summarising who you met with and the purpose, location and time of meetings.
Home-based business expenses
If operating a home-based business, you can make certain business expense deductions for the portion of your home you use for business, including:
Operating expenses – landline phone, internet, cleaning, furniture and furnishings, utilities.
Occupancy expenses – rental payments or mortgage interest, land tax, home and contents insurance, and council rates.
If you claim occupancy expenses, you will be subject to capital gains tax when you sell your home. For this reason, it might be better not to claim occupancy expenses. Consult a business tax professional on the long-term tax implications of home-based business tax deductions.
Learn more about capital gains tax and how to minimise it for long-term wealth creation.
Professional development – self-education
Another area of tax-deductible business expenses is self-education. When you pay for education and training related to work – for yourself or employees – the expenses are tax deductible. This includes:
Education and training from educational institutions, even if it doesn’t result in a formal qualification
Attending conferences and seminars related to your business
Self-paced learning and study tours (in Australia or abroad).
You can claim deductions, books and travel to and from where you receive the business-related education and training.
Learn more about deductible expenses for education and training.
Other incentives to reduce your taxable income
There’s a range of incentives that can help you reduce your tax. Some include:
The small business income tax offset, which can reduce the tax you pay by up to $1,000 each income year. The offset is calculated on the proportion of tax payable on your business income.
Loss carry-back tax offset – this is a refundable tax offset that eligible corporate entities can claim in the 2020–21, 2021–22 and 2022–23 income years. The tax offset may be available to entities that have made tax losses in the 2019–20, 2020–21, 2021–22 or 2022–23 income years.
The research and development (R&D) tax incentive – this provides a tax offset for eligible R&D activities and has two main components, including a:
o refundable tax offset for certain eligible entities whose aggregated turnover is less than $20 million
o non-refundable tax offset for all other eligible entities.
Personal super contributions
Although not a business operating expense, making additional superannuation contributions can help you reduce your income tax. The two main ways to make superannuation contributions are concessional and non-concessional. Concessional contributions are put into your superannuation account using pre-tax dollars. The concessional rate of 15% on contributions enables you to avoid a higher marginal tax rate. Non-concessional super contributions are made with after-tax dollars.
Getting assistance with business deductions
Understanding the finer points and keeping up with changes can be challenging. The tax professionals at Lanteri Partners can help you navigate the complexities to maximise the expenses you can claim and minimise tax paid.
Contact Lanteri Partners today for a personalised consultation with our expert tax professionals.