Wondering how you can maximise your business deductions this year? The EOFY is nearly upon us and between JobKeeper and other unique circumstances, it’s safe to say, this year has shaped up differently. It’s important that you not only get your tax deductions right before June 30 but that you understand how budget changes can affect your small business. If you have no idea what we are on about, our tax accountants are here to arm you with all the information you need to make EOFY feel like a walk in the park.
What deductions can I claim on my taxes as a small business?
That’s a loaded question so let’s start with the most common tax deductions for small businesses. There is a range of expenses that the majority of small businesses are eligible for including, repairs and maintenance as well as operating, employment and capital expenses. Additionally, there may be other expenses that are limited to the products or services you sell but let’s begin with the most common expenses.
Anything that is involved in the day to day running of your business is considered an operating expense and could be tax-deductible. Accounting, administration, advertising and marketing, office premises, office running expenses, trading stock, legal fees, insurance and vehicle expenses all fall under the operating expenses umbrella.
In addition to those listed above, there may be other operating expenses that are specific to your business, these can include everything from point of sale systems to freight, professional membership fees to tools and software. For example, Adobe Creative Cloud might be intrinsic to a Videographer, while a law firm will require continuing professional education.
Salary and wages, fringe benefits, superannuation and training costs are all tax-deductible employment expenses.
That stand up desk for a new employee? Tax-deductible. Capital expenses are any investments in your business – think machinery and equipment, vehicles, furniture and computers. As long as these assets aren’t written off immediately, they may be a tax deductible expense.
Repairs and maintenance.
Whether you are mending an office leak or repairing your machinery, any costs associated with the repair and maintenance of your business assets and premises are deductible.
What’s not on the list?
Now that we have covered eligible dedications, let’s touch on what you are not entitled to claim. Fine and penalties, entertainment, provisions for employee leave as well as donations to entities not registered as deductible gift recipients are all examples of deductions you cannot claim on tax. If you have any deductions you are unsure if you can claim, such as private usage of business vehicles, prepaid or borrowing expenses, don’t play guessing games and consult with a tax accountant.
What’s on the ATO’s radar?
You can expect that The Australian Taxation Office (ATO) will be running a fine-tooth comb through any expenses relating to travel, motor vehicles, home office expenses, fringe benefits and JobKeeper. So how can you keep the taxman happy?
Up first, we have travel expenses – any travel should be directly related to income-producing activities so make sure any travel fares, accommodation and meals that you claim meet the criteria.
Motor vehicle expenses.
Next in line, motor vehicle expenses. If you want to claim any of your motor vehicle expenses on tax, you will need a logbook of any recorded private travel as well as all of your vehicle’s fuel, repairs and servicing, finance arrangements, insurance and registration records. The ATO goes into more detail about what you need to include on a logbook. Head over and have a read if you’re unsure, or give us a call as it can be a bit full on.
Home office expenses.
Have you or your team been working from home this year? You’re in luck as the ATO has created a shortcut due to the increase of remote working. So for every hour that you have worked from home, you can claim a rate of 80 cents. However, if you typically work from home (i.e you worked from home pre COVID), head to the ATO home office expenses calculator to make sure you are maximising the deductions you are eligible for.
Examples of fringe benefits include allowing an employee to use a work car for private purposes, or paying for a team members gym membership. Any benefits provided to your employees will need to be captured, especially if they involve vehicle or entertainment expenses, as they will most likely fall under the ATO’s microscope.
The last item on the agenda is JobKeeper. If you were an eligible business participant and/or employee that received JobKeeper payments, make sure all your information is up to date and accurate as the ATO will be fact-checking your payroll records.
Who qualifies for instant asset write-off?
One of the most notable changes we witnessed this year involves the instant asset write-off threshold. The instant asset write-off threshold has dramatically increased for small businesses from $30,000 up to $150,000 and will be in place until 30 June 2021. To ensure that you make full use of this update, talk to a tax accountant about whether it is a good time for your business to buy new assets and claim them as an immediate deduction.
A tax accountants top tip – set the records straight.
To ensure you meet your tax obligations, don’t forget these four crucial tax requirements:
- Bear in mind you need a valid tax invoice for any expenses over $82.50 (including GST) to prove a business expense.
- Be sure to keep all your business transactions (incomes and expenses), activity statements and financial reports for at least five years.
- Remember to keep all records relating to employees, contractors and payroll for at least seven years.
- If your business is a company, you must keep all records for at least seven years, including director meeting minutes.
How do I maximise my business deductions?
Now the nitty-gritty is out of the way, we want to ensure you are claiming everything you are entitled to and have the best possible tax outcomes. With so many businesses affected by COVID-19, it is crucial you get your tax deductions right. Tax planning at the end of May/early June will allow you to proactively plan for any tax that is due.
At Orbit, our tax planning service means we check your business’s eligibility for concessions, offsets, incentives and rebates to make sure your business is calculating taxable income correctly, so you don’t pay more tax than you need to.
Have a question on what is and isn’t tax deductible for your small business? Jump on the tax planning bandwagon and make more possible by booking a chat or by getting in touch today with our friendly team of tax accountants.