What business expenses can you claim or can’t claim on tax?
Your business may have several running expenses. These are operational expenses necessary for the survival of your business and hence, many of these expenses can be claimed when you’re filing your tax returns. What does it mean?
You pay taxes after deducting all business expenses and salaries (if you have employees). Usually, the money that you take home is taxable. Consequently, the lower is the amount of money you take home for personal expenses and wealth generation, the lower is the tax you pay.
Hence, as a self-employed person or as a small business owner, you need to seriously consider deductibles – expenses that you deduct out of your overall business revenue. In this post we will learn what type of expenses you can claim as deductions on your tax.
What expenses can you claim?
The authorities want you to be able to grow your business and to grow your business, you need to spend money on it. You may need to travel. You may need to hire contractors and employees. You purchase furniture. You buy computers, laptops, mobile phones and software. You pay utility bills. These are just a few examples, but these are business expenses.
The money that you are spending on your business, you are putting it back into circulation. You are not using it for your personal gains, for savings, for investments, and for living expenses. Therefore, the money that you are spending on your business is deductible.
Distinguishing business expenses from personal expenses when you are self-employed or when you’re running a small business, maybe from home, can be a bit tricky, and there is a chance that unintentionally you may end up mixing them up. Hence, it is very important to know which expenses are deductible, and which are not.
Listed below are some expenses that you can claim is tax deductibles:
- Business-related rent and mortgage
- Business-related utility bills
- Phone and broadband bills used for business
- Stationery and other office products
- Interest on business loans and credit cards
- Advertising & marketing
- Consulting fee
- Maintenance and repair of the office space
- Vehicle purchase
- Travel, accommodation, and lodging expenses
- Workplace -related clothing
You often need to market your business. You spend money on advertising, SEO, promotion, digital marketing, and social media marketing. Even building a website for your business, for that matter. These are all marketing expenses that are deductible.
Buying a vehicle to ferry your employees or transport yourself to and from work? This comes in the capital alliance. Repair and maintenance of business vehicles is also considered deductible.
What if you are working from home and there are some facilities that you use for professional as well as business purposes? First of all, the place where you live, and work, is being used both for residential purposes as well as for conducting your business. Your electricity bill may also be divided between personal use and business use, and so may be your mobile phone that you carry with you all the time whether you are making business calls or personal calls (some people use different mobile numbers).
Are you paying rent? Are you paying mortgage interest? What about council tax? You use water. There may be many insured items in your house that you use for business as well as personal use: the computer that you use for work may also be used by your kids for doing schoolwork. If your building has security and you pay for it you may need to decide whether it is a personal expense or a business expense?
If it becomes difficult to draw a line between personal and business expenses, especially when you are running your business from your place of residence, you can talk to an accountant who is well versed with these matters. Although the authorities want you to get tax benefits for using your property or even your personal vehicle for business and hence, incurring expenses, you can also attract penalties if you inadvertently omit certain expenses that are personal in nature, but you include them in your business expenses.
Which expenses are not deductibe?
There are some disallowable expenses. Purchasing a computer for your children so that they can study and entertain themselves is not a business expense and hence, it cannot be included in the deductible expenses. If you also begin to use this computer for business purposes, then a part of that expense can become deductible.
Personal expenses are naturally disallowable expenses. Purchasing your clothes if they are not a part of your business attire (some employees need to wear work-related clothes) cannot be deducted. Money spent on your own food or for the food of your family is not deductible. All your personal expenses – the money that you are not spending on your business but are spending nonetheless – are not deductible. If you get a parking ticket for your work vehicle, that is not deductible.
In conclusion, figuring out deductible expenses when it is difficult to draw a line can save you lots of money when you are filing your returns. It is always preferable to talk to a trained tax consultant or an accountant to compile a list of deductible expenses for tax purposes.