Running a sole trader business is adventurous, but it needs proper planning too. It involves several costs you have to bear like staff wages, travel expenses, business finance costs, marketing costs, etc. However, you can always claim a deduction for these costs. It sounds pretty relieving for all the businessmen like you out there. Well, you cannot claim everything. This cannot be possible. There are specific rules and regulations which you have to comply with. One of the most critical points to keep in mind is that you cannot claim private expenses.
What is a sole trader?
A sole proprietor usually runs and operates his or her own business. As it is not established as a legal entity, it is the owner’s responsibility to comply with financial and legal obligations. Sole trader examples include computer repair services, photography, freelance writing or graphic designs, etc.
How does tax deduction work?
The Australian Taxation Office uses a basic formula to determine taxable income. It is the amount you get after deducting taxes from the assessable income. Assessable income is the maximum amount you get by running your business, i.e., the income which is subject to tax. You can keep a sole trader accountant to help you.
What points should you keep in mind while filing for a tax deduction?
As you can claim most of the expenses used in running your business, there are specific points to consider while filing deductions.
-
These expenses should be directly related to your income.
-
These should have been for your business activities and not for your private purpose.
-
It may occur that the expense was used for both businesses as well as private purposes. In that case, the portion exclusively used for business deals can only be claimed for deduction.
-
You should have substantial records for your claim.
What expenses may you claim deductions for your sole trader?
The Australian government provides a long range of tax relaxations in small businesses. One of them is the recently introduced tax relief for businesses that are just starting, which had decreased an enormous tax burden for small business owners. For this reason, several people are coming forward to open small businesses. Let us assume that you are making plans to start a small business, according to the new tax relief scheme. In that case, you will get some immediate deductions from several costs, including accounting and legal expenses and other government taxes and charges. For information and guidance on tax-related queries, you can consult with an accountant in Perth. The expenditures and expenses that are eligible for deductions for your business are as follows:
-
Business travel expenses
It is common for a business owner or an employee to travel to areas within or outside the country. It is suggested that you maintain a travel diary on a business tour as it will document records of the expenses spent the whole time. This is applicable for partnership business persons and sole traders. The business expense deduction does not depend on the period of your stay. You are also eligible for deductions on journeys that complete in a single day.
Expenses include airfares, or ride fares (like train, taxi, bus, tram, whichever is applicable), car hiring expenses, and the costs taken using a hire car-like fuel, car parking, etc., toll taxes, and accommodation fares. You can also get meal fares if you stay overnight. However, to get a tax deduction on expenses taken at an overnight stay, you must have a permanent home elsewhere, and you are required to stay away from that home overnight for your business job.
If your employees travel for business purposes, there are three ways you can pay the expenses. You can pay from the business account, and you can pay your employee a travel allowance or reimburse the employee for the costs. Payment of travel allowance and reimbursement will help you get (FBT) liabilities or Fringe Benefits Tax.
-
Motor vehicle expenses
Motor vehicle expenses include expenses spent on cars or other vehicles required to run your business. Those cars will be treated as motor vehicles that can carry less than one tone and several passengers less than nine. Other cars include motorcycles and utility trucks or panel vans, which can hold more than one cargo of load, and minivans, carrying more than nine passengers.
Various motor vehicle expenses are:
-
Fuel and oil prices.
-
Repairs and service charges.
-
Interest rates on a motor vehicle loan.
-
Registration fees.
-
Lease payments.
-
Insurance premiums.
You may use the motor vehicle for both private and business purposes. Still, you have to keep in mind that you must be able to differentiate the two types and identify and justify the amount you used for business purposes.
-
Expenses for a home-based business
If you operate your business from your home, you can also claim tax deductions in several categories. You can claim occupancy expenses, including rent, mortgage interests, land taxes, house insurance premiums, and council rates. For a home-based business, you must bear some running costs like electricity, phone, necessary equipment, furniture repair, and cleaning purposes. You can claim for these expenditures too. If you need to travel to other places from your home office for official purposes using vehicles, you can claim the motor vehicle expenses.
When can you claim the expenses?
There are two types of expenses. One is operating expenses that include office stationery charges and wages, and another is capital expenses, including costs on machinery and equipment. You may claim the deduction in the year you incur them for operating expenses, but for capital expenses, you can claim those over a more extended period.
Ending note
Discussing with a skilled professional firm like Accountant Perth would be the best thing to do. They can give you clear insights into the matter and also help with tax filing.
