Tax Tips for small businesses
Common Tax Deductions for Small Business
Are you claiming all the business tax deductions that you are entitled to?
There are many expenses common to most small business, and there are other expenses that are specific to the nature of the goods or services that your business provides.
- Operating expenses include accounting, administration, advertising and marketing, office premises, office running expenses, trading stock, legal fees, insurance and vehicle expenses.
- Employment expenses include salary and wages, fringe benefits, superannuation and training costs.
- Other operating expenses may include things specific to your business, for example point of sale systems, freight, professional membership fees, professional education, protective equipment, tools or specialised software.
- Capital expenses include machinery and equipment, vehicles, furniture and computers. Depreciation for these assets may also be deductible if the expense was not written off immediately.
- Repairs and maintenance to assets and business premises.
- Expenses must relate to the running of the business and providing the goods or services that your business offers.
Some common expenses that are not deductible are fines and penalties, provisions for employee leave, donations to entities not registered as deductible gift recipients and entertainment.
There may be some expenses you want to check with us such as private usage of business vehicles, prepaid expenses, bad debts, loss of stock and borrowing expenses. We’ll make sure to include all the deductions you’re entitled to.
What’s on the ATO Radar?
Businesses whose benchmarks fall significantly outside the ATO’s small business benchmarks.
- Work-related travel expenses – travel fares, accommodation, meals. The travel should be directly related to income producing activities and you need records to verify the travel claims.
- Motor vehicle expenses – keep records for fuel, repairs and servicing, finance arrangements, insurance and registration. Keep a logbook to record private travel.
- Home office expenses – this year there is a shortcut calculation for people who have temporarily had to work from home due to COVID-19. This allows for a flat rate of 80 cents per hour for work time. For people who usually work from home, check the ATO home office expenses calculator to maximise the allowable deduction.
- Fringe benefits – have you captured all benefits provided to employees? Vehicle and entertainment benefits are usually scrutinised.
- JobKeeper – if you have claimed JobKeeper for eligible business participants and/or employees, the ATO will be doing data matching to check that JobKeeper has been claimed and paid to employees correctly.
- Superannuation – have you paid the superannuation guarantee on time to employees’ super funds? The ATO will examine your Single Touch Payroll records including superannuation payments.
- Instant asset write-off – the threshold remains at $150,000 this year, but there are rules about eligibility so talk to us to see if the asset deduction claims apply to your business.
Keep Your Records
Remember you need a valid tax invoice for any expenses over $82.50 (including GST) to prove the business expense.
- Keep records for all business transactions (income and expenses), activity statements and financial reports for at least five years.
- Keep all records relating to employees, contractors and payroll for at least seven years.
- If your business is a company, keep all records for at least seven years, including director meeting minutes.
Maximise Your Business Deductions
We can check your business’s eligibility for concessions, offsets, incentives and rebates and make sure your business is calculating taxable income correctly, so you don’t pay more tax than you need to!
With so many businesses still affected by COVID-19, it’s important to get the allowable tax deductions right for your business and get in early for your tax return. This way you get more time to plan for payment, or if you are due a refund you will see it in your bank sooner.