Common Tax Deductions for Small Business
There are many expenses common to most small businesses, and there are other expenses that are specific to the nature of the goods or services the business provides. Are you claiming all the tax deductions that you are entitled to?
- Operating expenses include accounting, administration, advertising and marketing, office premises, office running expenses, trading stock, legal fees, insurance and vehicle expenses.
- Employment expenses include salary and wages, fringe benefits, superannuation and training costs.
- Other operating expenses may include things specific to your business, for example point of sale systems, freight, professional membership fees, professional education, protective equipment, tools or specialised software.
- Capital expenses include machinery and equipment, vehicles, furniture and computers. Depreciation for these assets may also be deductible if the expense was not written off immediately.
- Repairs and maintenance to assets and business premises.
Expenses must relate to the running of the business and providing the goods or services that your business offers.
Some common expenses that are not deductible are fines and penalties, provisions for employee leave, donations to entities not registered as deductible gift recipients and entertainment.
There may be some expenses you want to query with us such as private usage of business vehicles, prepaid expenses, bad debts, loss of stock and borrowing expenses.
What’s on the ATO Radar?
- Travel expenses – travel fares, accommodation, meals. The travel should be directly related to income producing activities.
- Motor vehicle expenses – keep records for fuel, repairs and servicing, finance arrangements, insurance and registration. Keep a logbook to record private travel.
- Home office expenses – this year there is a shortcut calculation for people who have temporarily had to work from home due to COVID-19. This allows for a flat rate of 80 cents per hour for work time. For people who usually work from home, check the ATO home office expenses calculator to maximise the allowable deduction.
- Fringe benefits – have you captured all benefits provided to employees? Vehicle and entertainment benefits are usually scrutinised.
- JobKeeper – if you have claimed JobKeeper for eligible business participants and/or employees, the ATO will look closely at your payroll records.
Temporary Full Expensing
This year small businesses have the potential to claim the full cost of asset purchases under the new temporary full expensing rules. The new threshold is in place until 30 June, so talk to us if you’d like advice about whether it’s a good time for your business to buy new assets and claim an immediate deduction.
Keep Your Records
Remember you need a valid tax invoice for any expenses over $82.50 (including GST) to prove the business expense.
- Keep records for all business transactions (income and expenses), activity statements and financial reports for at least five years.
- Keep all records relating to employees, contractors and payroll for at least seven years.
- If your business is a company, keep all records for at least seven years, including director meeting minutes.
Maximise Your Business Deductions
We can check your business’s eligibility for concessions, offsets, incentives and rebates and make sure your business is calculating taxable income correctly, so you don’t pay more tax than you need to!
With so many businesses affected by COVID-19, it’s important to get the allowable tax deductions right for your business and get in early for your tax return. This way you get more time to plan for payment, or if you are due a refund you will get it quickly.