Many small businesses don't claim all eligible expenses at EOFY. A small business accountant highlights what you may be overlooking.
At a glance
Here's a snapshot of our interviewee’s advice:
- Many small business owners don't claim everything they're entitled to.
- Obvious expenses to claim include rent, employee wages and benefits, marketing, consulting fees, travel expenses and motor vehicle expenses.
- Tax deductions that small business owners miss include bad debts, self-education, interest on loans and start-up costs.
- There are two different ways of claiming working-from-home expenses.
Navigating tax deductions at EOFY can be complex. While most small business owners claim obvious expenses such as rent, employee wages and equipment, many aren’t aware of everything they’re entitled to, says Marianna Agostino, director of Conscious Wealth Creation.
Here’s her checklist to maximise your EOFY tax deductions.
What is a tax deduction?
A tax deduction is an expense that can lower your taxable income, but the expense must have a direct link to earning your income.
Some expenses are treated a certain way. For example, fixed assets such as computers or other equipment must be depreciated over their lifespan rather than claimed in full on purchase.
Nevertheless, the instant asset write-off announced in the Federal Budget enables businesses with turnover up to $10 million to immediately deduct the cost of eligible assets up to $20,000.
What tax deductions can small businesses claim?
There are lots of obvious ones, such as rent, utilities, insurance, office supplies, employee wages, super and workers’ compensation insurance.
Advertising, marketing and consultant fees (for accountants, lawyers, marketing specialists, and business strategists, for example) are also deductible.
Business-related travel expenses such as accommodation, transportation, meals and conference fees can be claimed, but only the business-related portions are deductible.
Motor vehicle expenses, including purchase costs, loan interest, fuel, registration, insurance and maintenance are also tax-deductible, with personal travel portions excluded.
9 tax-deductible items small business owners often miss
Here are some common deductions you may overlook:
1. Superannuation.
Super for yourself and employees is deductible this financial year if paid and received at the fund by 30 June.
2. Inventory.
The value of inventory held on 30 June is not deductible but is considered an asset and is subtracted from the annual cost of goods or wages. Extensive waste can negatively impact a business’s profitability.
3. Aged receivables and creditors.
Small businesses using cash basis accounting should pay outstanding bills to reduce taxable income, as only deposited income and paid expenses count.
4. Interest on business loans.
You can claim interest paid on loans used for business purposes.
5. Motor vehicle expenses.
Without a logbook, the maximum claim for business travel is $3,900 for 5,000 kilometres. Keeping a logbook can result in higher deductible vehicle expenses.
6. Bad debts.
Write off uncollectible accounts to claim deductions.
7. Self-education and training.
Training courses related to your role are often deductible but many small businesses don’t claim them as expenses.
8. Subscriptions and memberships.
These include professional journals, trade organisations and networking groups.
9. Start-up expenses.
Costs including market research, legal fees and advertising may be deductible over time, not fully in the year incurred.
What home-based expenses can business owners claim?
In order to be eligible, you must be working from home to fulfil your employment duties, not just carrying out occasional tasks.
If you meet the eligibility criteria, you can claim your WFH expense deduction using the fixed-rate method or the actual cost method.
The fixed-rate method is $0.67 per hour worked from home, which covers energy expenses, internet expenses, mobile and home phone expenses, and stationery and computer consumables.
Using the actual cost method, you can include all of the costs listed above, however you can only include the additional cost incurred as a result of working from home.
If you run a home-based business, you may also be able to claim your occupancy costs such as mortgage interest, rent, council rates, land taxes and house insurance costs.
As always, maintaining thorough and organised records is key to ensuring that you’re able to substantiate your claims.
Whether you’re taking advantage of tax deductions, supplier sales or gearing up for the new financial year – we’ve got your back. The Prospa Business Line of Credit comes with an easy online application and fast approval times – apply today.
