Tax time often delivers a mix of questions and doubt to every small business owner. Are you declaring all your income and expenses? Where is that shoebox of paperwork and receipts? What sort of small business tax deductions can you take? Are there smart but legit ways you can pay less tax?
That last one is The Question we all want answered.
Small business tax deductions you could claim in 2019
There are urban legends of business owners being able to claim seemingly ridiculous expenses as tax deductible. But what are legitimate deductions for a small business in 2019?
You certainly don’t want the Australian Tax Office (ATO) marking you down for an audit because you pushed the boundaries of your small business deductions.
This post gives you a comprehensive list of deductions you can claim for your small business and some you’ll want to steer clear of, including:
- Staff wages
- Marketing expenses
- Small business office expenses
- Business development and training
- Business finance, insurance and legal costs
- Depreciable assets
- Travel expenses
- Cost of vehicles
- Rent and utility expenses
Your tax return should include all the expenses related to running your small business.
1. Staff wages
This covers the wages, salaries, commissions and taxable fringe benefits for your employees.
If you don’t employ staff, you should claim the contract labor you use like your virtual assistant, graphic designer, copywriters and marketing consultants. Don’t forget any tradespeople you hired throughout the year for repairs.
2. Marketing expenses
Be sure to claim any expense you incurred to promote your business! This includes advertising online or in magazines and newspapers as well as printing costs for your marketing collateral. It also includes expenses for subscriptions to your email marketing software, your social media scheduler and your search engine tool optimisation service.
3. Small business office expenses
Speaking of subscriptions, what about your Google account and your cloud storage? Those should be in your small business deductions.
You should also claim postage and freight costs including stamps you keep in the office, paper, envelopes, labels, pens and those fancy highlighters you bought to write up your new year calendar (also a deduction), and cleaning supplies.
4. Business development and training
When it comes to training, claim workshops and events you’ve attended as well as online courses and programs. If you’re a member of a specialised group that helps you run your business better, that’s a valid deduction too.
5. Business finance, insurance and legal costs
These deductions include the cost of your accountant, your bookkeeper and your tax return submission.
Don’t forget the cost of any legal advice you got throughout the tax year and different types of insurance you have.
6. Depreciable assets
Most business will have assets that count toward the small business deductions. Your computers, printers, bookshelves and desk (not to mention other furniture purchased for business use) are all office assets.
You can claim a deduction straight away for depreciating assets costing less than $20,000 each or if the balance of your assets is less than $20,000 at the end of the income year.
You can claim a deduction over time for most other assets, combining costs into a small business pool and claiming a set percentage each year.
7. Travel expenses
Do you travel as part of your business operations? You can claim airfares, train fares, and bus or taxi fares that get you to and from business meetings and events. Accommodation costs and meal expenses for overnight business travel are also considered small business tax deductions, although fringe benefits tax may apply for some employee travel expenses.
The ATO lays out slightly different rules about what you can claim when you’re travelling for longer periods. Track your itinerary by keeping a travel diary of where you go, who you visit and for how long. You should also document your expenses during this time.
Generally speaking, if the travel-related expenditure can be shown to be directly connected with the carrying on of a business, it should be deductible.
That said, whether food and drink is a valid small business tax deduction can be tricky.
Read more about what constitutes “entertainment” here, but the summary is: If you’re serving light refreshments or lunch on your business premises during work time, you can claim it as a deduction.
As with all this advice, check with a tax professional before you submit your tax return.
8. Cost of vehicles
If you have a home-based business, you can claim the cost of trips between your home and other places if the travel is for business purposes. You also can add the costs of running your vehicles if you can prove business usage.
9. Rent and utilities expenses
Overheads such as your rent and utilities, including your office phone line, mobile phone, electricity and gas, and water costs are definitely claimable.
Remember that you have to be able to prove your expense is for your small business.
What if you run a home-based small business?
It can seem like the lines between business and personal use become blurry when you run a home-based small business. They become less blurry if you have a dedicated office space.
When you do, you can claim:
- Occupancy expenses such as mortgage interest or rent, council rates, land taxes and house insurance premiums.
- Running expenses such as gas and electricity, phone, decline in value of plant and equipment, decline in value and cost of repairs to furniture and furnishings, and cleaning.
How much can you claim? The percentage of the home floor space your office takes up. For example, if your office takes up 10% of your home’s floor space, you can write off 10% of your house expenses.
Work out your deductions with this handy ATO home office expense calculator.
Clever ways to reduce your small business tax bill
Looking for even more ways to lower your tax bill? Introducing … the small business tax offset! The ATO works this out for you and this little gem can reduce your payable tax by up to $1,000 each year!
You’re eligible for a small business tax offset if you’re operating as a sole trader or have a share of small business income from a trust or partnership that turns over less than $5 million for the tax year.
The small business tax offset is worked out on how much tax you should pay (based on your business income), 8% up to $1,000.
The ATO has this small business tax offset calculator to give you the net small business income for the ATO.
What have we learned?
Working out your small business tax deductions starts with the question: Did you incur this expense in the running of your business?
If the answer is yes, the next question is: Is there also personal usage?
If the answer is no, you can feel good about claiming it 100% as a small business tax deduction.
But of course, you should also talk to your accountant or a tax professional just to make sure!