Whilst it can pay off in the long run, launching a small business requires a significant financial investment. As a business owner, you’re always on the lookout for ways to save money while increasing revenue. This can be accomplished, for example, by making use of the many tax breaks designed specifically for business owners of smaller establishments.
Taxes owed can be lowered by taking advantage of deductions, which are costs that can be subtracted from taxable income. This article will discuss some of the most popular tax deductions for small business owners use to lower their taxable income.
This manual will assist you in maximising your tax deductions and minimising your tax liability, whether you are self-employed, the sole proprietor of a small business, or the employer of one or more people.
What Deductions Can I Claim For My Small Business?
Several possible tax breaks may apply to your situation as an Australian small business owner. Standard deductions include
Operating Expenses
The expenditures of keeping your firm up and functioning are known as operating expenses. Rent, utilities, office supplies, insurance, and maintenance are examples of operational expenses.
Many small businesses, especially those with a physical site, have rent as a significant monthly expense. The term “rent” can refer to the expense of renting any commercial property, such as a store, office, or warehouse.
Operating costs can include the cost of utilities like water, electricity, and internet service. Because they are essential to running your firm, you can write them off as a business expense.
Operational costs can include things like office supplies like paper, pens, and ink cartridges. You can deduct the total amount of these expenses from your taxable income.
Many companies also need to pay for insurance as an ongoing overhead cost. Deductions are available for business insurance premiums, such as liability, workers’ compensation, and property.
Operating expenditures could include fees for upkeep and repairs. These expenditures are obligatory to guarantee the continued reliability of your facilities, machinery, and other equipment.
Marketing And Advertising
Spending on marketing and advertising is what it takes to get your name out there and bring in new clients. Creating a website, advertising on social media, advertising in print, and running promotions are all examples of what this category might cost.
The price tag for developing a website for your company might include the initial setup fee as well as ongoing charges associated with keeping the site up and running. All sorts of things can add up to this, like design time, web space, and repairs.
You may incur expenses for social media marketing if you choose to promote your company on sites like Facebook, Instagram, and Twitter. Sponsored content, targeted adverts, and promotion are all examples of what can add up in price.
Expenses incurred in print advertising might include those for making and disseminating print ads like flyers, brochures, and business cards.
Marketing and advertising costs might also include promotions like sales, freebies, and contests. These expenditures are made to advertise your company and draw in new clients.
Depreciation
Wear and tear, obsolescence and other causes of gradual value loss over time are all examples of depreciation. Depreciation is a method of writing off the cost of using an asset, and it is commonly applied to machinery, vehicles, and even furniture in the setting of small businesses.
Australian business owners can deduct the cost of depreciating assets from their taxable income thanks to a policy established by the Australian Taxation Office (ATO). The deduction’s amount is determined by the asset’s acquisition price, its expected useful life in the company, and its expected resale price.
Say you spend $2,000 on a new workstation for your company. The ATO estimates that the computer will be used for another three years and will be worth $200 when its useful life is through. Hence, you can deduct $600 per year from your taxes ($2,000 minus $200 divided by 3 years) to account for the computer’s depreciation.
Depreciation can be determined using a variety of approaches, including the prime cost technique and the decreasing value method. The asset and the demands of the business should guide your decision on the best approach.
Travel And Accommodation
When a business travels for reasons such as attending a conference, meeting with clients, or visiting suppliers, it will incur travel and lodging charges. Depending on your circumstances, as the owner of a small business in Australia, you may be entitled to deduct these costs from your taxable income.
In some cases, you may be able to write off the cost of your plane ticket, train or bus price, rental car, and gas. Your lodging costs, such as those for a hotel, an apartment, or an Airbnb, could qualify as a tax write-off, too.
You need to be able to prove that your travel and lodging costs were necessary for the operation of your business before you may deduct them. You need to be able to demonstrate that the trip will directly benefit your company, such as by meeting with a client or attending a conference to gain insight into the state of your sector.
Home Office Expenses
A home office is a dedicated room in a person’s residence where business tasks can be completed. Depending on your circumstances, as the owner of a small business in Australia, you may be entitled to deduct these costs from your taxable income.
If you want to deduct work-related costs from your taxes, you need to be sure your home office qualifies as such under the ATO’s guidelines. Included in this category is devoting a specific space in your house to conducting business, such as a dedicated office. Please note that the kitchen table or the couch are not acceptable substitutes for a home office.
To qualify for these write-offs, you must determine what share of your house is dedicated to your business and allocate the associated costs accordingly. If your home office is 10 per cent of your house’s square footage, you may be able to deduct that much from your monthly utility bills.
The costs associated with running a home office should be carefully tracked and recorded. This includes everything from purchases to utilities. If you want to make sure you’re not missing any deductions and are still in compliance with Australian tax law, you should talk to an accountant.
Superannuation Contributions
Owners of small businesses in Australia are required by law to make contributions to their employees’ superannuation plans. You, as the owner of a small business, are obligated by law to make a contribution to your employees’ retirement accounts (known as “superannuation”).
In Australia, the current mandatory superannuation contribution rate is 10% of a worker’s ordinary time wage. The rate is expected to reach 12% by 2025.
Small business owners can contribute to their own or their workers’ superannuation schemes beyond the minimum required by law. Your tax return may be amended to reflect these gifts.
Superannuation payments made by small business owners may qualify for tax breaks. For instance, with the help of the small company superannuation clearing house, qualifying small enterprises can make superannuation payments for their employees all in one fell swoop.
Employee Wages
Wages are the money a business in Australia pays its workers in exchange for their services. Depending on the tax laws in your country, small business owners may be allowed to deduct staff wages and salaries from their taxable income.
Wages must have been paid within the fiscal year and must have been for services performed to be deducted. In other words, you can’t write off any expenses for wages that haven’t been paid or for money given to relatives for services that weren’t rendered.
Paystubs, tax file number declarations, and records of superannuation payments should all be kept for every employee. Also, check to see that you’re meeting your tax and minimum wage responsibilities following Australian legislation.
Small business owners who hire specific groups (such as apprentices or individuals with disabilities) may be eligible for government subsidies and tax breaks. If you want to take advantage of tax breaks and other financial aid, you should get in touch with the appropriate departments of your government and the trade groups that represent your field.
Conclusion
As an Australian small business owner, you can reduce your taxable income and save money by taking advantage of several tax deductions. Operating expenditures, marketing and advertising costs, depreciation, travel and lodging costs, home office costs, superannuation contributions, and employee compensation are all examples of allowable deductions.
If you want to take advantage of all the tax breaks available to you under Australian law, you’ll need to keep meticulous records of all your business’s expenditures and talk to an accountant or tax expert to make sure you qualify for everyone.
Taking advantage of these deductions and incentives can help you lower your taxable income and put that money back into your small business, increasing its chances of success in the marketplace.