Everyone gets excited about making purchases as tax write offs but what does this mean and what can you actually write off?
Here’s some helpful information for tradies and construction business owners, from a Brisbane business accountant.
What is a tax write off?
Let’s say your taxable income is a nice round $100k per year, to make things easy.
You will need to pay around $25,000 of that money in tax (give or take).
Then you look through your expenses and calculate that you spent $20k to operate your business. This included things like marketing, paying for software subscriptions, travelling between jobs, buying tools and paying providers.
Now your tax payable is $17,547.
The more you spend on business expenses, the less tax you will need to pay. This is why accountants promise to help minimise your tax bill. They know what you can claim so your income is less.
What can you write off?
Technically speaking, anything you purchase to use in your business can be written off as a tax expense. You do need to be able to justify it though, and prove you used the item you purchased for business reasons.
Here are some things tradespeople can write off as business expenses:
- – Protective clothing and work uniforms (if they have a logo)
- – Tools and equipment purchased for work
- – Tools and equipment you lease for work
- – Safety gear including helmets, steel cap boots and high-vis clothing
- – Apps and software you use to run your business
- – Work computer and phone
- – Office furniture and supplies
- – The cost of work-related education and training
- – Vehicles (up to a certain amount)
- – The cost of fuel to get between jobs
- – Parking and tolls
- – Insurance (not including health insurance)
- – Conference fees
- – Accommodation and meals if you are away from home for work
- – Licences and permits
- – Industry publication subscriptions
- – Home office expenses
For some of these items, you can claim up to a certain amount without needing evidence of your spending. Beyond this, you will need proof. There are a few ways to do this:
- – Have a business account and card for business expenses
- – Take a photo of the receipt and keep a folder on your phone
- – Go through your bank statements line by line for your accountant and highlight your work expenses (so long as they show the name of the supplier, the date and the amount you have spent; and be prepared to explain exactly what the purchase was).
With vehicle expenses, you may need to keep track with a logbook. This makes it easier to substantiate your claims at tax time. And speak to your Brisbane business accountant about the type of vehicle you should be driving; it is easier to claim expenses on a ute or work van than a sedan/hatchback.
For your home office, you can claim things like internet and electricity, but only a percentage as you are probably splitting the use between personal and business.
For larger equipment purchases of several or tens of thousands of dollars, speak to your Brisbane business accountant to find out how much you can claim. There is some information on the ATO website here:
An additional step you can take to reduce tax is to voluntarily top up your superannuation. This money is yours to keep but is tax deductible up to $25k per year.
What you can’t claim
If you didn’t use it for work, you can’t claim the cost.
For example, if you have to go to Sydney for a conference, you can’t write off plane tickets for the whole family to join you. You also can’t claim your Harbour Bridge Climb while you’re there.
The cost of renovating your kitchen because you have a home office can’t be claimed, although you may be able to write off some of your rental payments.
If you are employed as a tradie, you can’t ‘double dip’ by buying tools and equipment, having your boss refund you the cost then adding the items to your tax return. The same goes for your phone bill.
Speak with a Brisbane business accountant who specialises in helping tradies and trade business owners at tax time. Contact Mobbs & Co today.