With all the responsibilities small business owners have, it’s easy to overlook work deductions that could have a huge impact on reducing your taxes.
Research from cloud accounting firm Xero reveals 40 per cent of Australian small business owners are unclear what expenses qualify for tax breaks. It’s not surprising given that eligible deductions can change from year to year and vary depending on an entity’s structure.
The Australian Tax Office’s small business deductions list is a lengthy one, but even spending a few minutes reviewing it could save you a small fortune at tax time.
Some of the less obvious nuggets on the list worth considering are:
- Advertising and sponsorship costs
- Bank fees and charges
- Tender costs (even if the tender is unsuccessful)
- Travel expenses for relocating employees
- Interest on some borrowings
- Home office expensessuch as a portion of your rent or mortgage (See the ATO website) for more information
- Insurance premiums including car, building or cover for professional or public liability
- Key office expenses such as electricity bills, phone bills, rates, water bills, rent or lease payments for business premises, repairs or maintenance to the property
- Business memberships and magazine subscriptions
- Education, technical or professional qualifications expenses
- Tax expenses such as preparing and lodging tax returns and BAS
Buy assets now and benefit
Meanwhile, there are still a few weeks to take action on some other lucrative tax perks your small business may have overlooked. Do you need new assets? Now may be a good time to purchase them. As part of the 2017 federal budget, small business and sole traders have been given a $20,000 asset purchase tax deduction for any entity with an active ABN, whose turnover is less than $10 million. The items purchased can be brand new or second hand and need to relate to your business. This new deduction has been extended and goes through to June 30, 2018.
Also under this perk, if you want to purchase a phone or a laptop for your small business but will also be using it for personal use, you can claim a deduction on the portion that is used for business use.
Erase bad debt
Debt collection agency Prushka urges small businesses to review bad debts before the end of financial year to reduce their tax bill.
Prushka chief executive Roger Mendelson says if the debt is unlikely to be recovered, write it off now. This would prevent the debt becoming taxable income, which would require the business owner to pay tax on the amount.
He says there are a number of other steps small businesses should undertake before June 30, including checking their current debtor ledger, identifying debts where the other party is bankrupt or has entered into liquidation, and noting debts that are more than six months old.
“If bad debts are written off after June 30, then the deduction can’t be claimed until the following tax year and the same applies to GST. If the debt is bad, it is better to write it off and get a credit for the GST which has been charged but not collected from the customer,” Mr Mendelson adds.
It’s also the time for small businesses to review their stock and inventory. Identify any damaged or obsolete stock and write it down or write it off. This exercise will impact the value of the trading stock and your profit margins.
Gather up those records
An easier step for owners is to add up all those work related expenses that may not be immediately obvious such as donations including political donations, car maintenance, business travel, stationary and other office supplies.
A quick scan around your small business will no doubt result in dozens of tax deductions, but strangely some of the most lucrative ones get forgotten. So take the time to make sure you sniff out every deduction this year. After all, it’s money that belongs back in your pocket.