Finding tax deductions are crucial for anyone filing a tax return, but for businesses, using them to help offset major profits is even more so, especially if you are just starting up.
The primary types of legally structured businesses in Australia are sole traders, partnerships and companies. Allowable tax deductions differ somewhat among the different structures, so be sure to confirm the deductions you take with a tax professional before submitting them on your return.
When your business ends up with losses instead of profits at the end of the fiscal year, you can usually carry that loss to a future tax year and claim it as a deduction then, to offset income gained in that tax year. If you are a sole trader or a partner in a partnership, you may be able to claim business losses against income besides just company earnings, for example, your salary.
You can claim deductions against almost all of the expenses you ring up in order to run your business in order to reduce your taxable income. In most situations, you can claim business operating expenses in full, for the year in which you incur them. Expenses for capital items, however, such as machinery, buildings and equipment, are normally claimed over a period of years.
It’s vital that you keep good records of the expenses you incur, and deduct, in any given year for at least five years. If your deductions are questioned and you do not have proof of these costs, tax return can be denied, or reduced by the number of items for which you have proof.
The list of individual deduction categories is long and varied. Following are some deductions that you should take care not to miss, because they can add up and be a valuable tool in keeping the annual taxes you must pay on your business in check. If you think you might be missing some of these deductions, or are not sure how to claim them, it’s best to consult a tax advisor for help. The main rule to remember is that you may not deduct any expenses against your business that are made for personal use.
Deductions for the decline in value of your capital assets, such as buildings, vehicles, furniture, machinery and equipment are valuable, recurring deductions. Double check to make sure though, that the calculations are correct for the amount you can claim for the depreciating value of such items.
Motor vehicle expenses
Depending on the business structure under which you operate, the type of vehicle you are claiming as a deduction, and whether or not you also use it for private purposes, will affect the amount of the deduction you can claim.
Overnight business travel expenses
You must maintain specific evidence for business travel, documented with receipts for everything you intend to claim.
Repairs, maintenance and replacement expenses
You can usually claim deductions for repairs to business machinery, tools or even the premises, as long as the costs are not considered capital expenses.
The salaries that you pay to employees, and yourself can be claimed as deductions against any profits in a given tax year.
R&D Tax Applications
A special tax incentive that you can utilise to offset some costs of doing eligible R&D activities. Read more about the R&D Tax here.
In summary, there are many opportunities to claim tax deductions, but few know them all. Be sure to keep track of any expenses you incur throughout the year, whether or not you think they are deductible. Then consult a tax professional like Femia Accountants, who can help you weed out the valid ones and identify additional deductions that you didn’t even know about.
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