How do you know what’s a claimable business expense?

tax deduction

Often as a business owner you’ll have people sell you things as a “tax deductible expense” but is it really tax deductible and what does that mean?

Take a look at the two key rules to apply when you’re figuring out what counts as a tax deduction, and then call Mobbs & Company for more information.

Rule number one: Connection

The first rule is simple: any expense you claim must be related to the operations or growth of the business.

It’s as simple as, ‘Is it for work?’

As long as there is a connection between the expense and work, you can probably claim it as a tax deduction, with a few exceptions and grey areas that we will explain shortly.

Simple claims are expenses such as:

  • Industry memberships
  • Training or business coaching programs (so long as they are relevant to the work you do)
  • Tools and equipment
  • Computers and office supplies

Grey areas apply when you only partially use something for work, for example:

  • Your phone or home internet
  • Your vehicle running costs
  • A trip overseas to attend a conference and have a holiday

In these cases, you’ll have to be specific with your accountant about how much of the expense has been used for work. For example, you can’t write off the cost of a two week trip when you only attended a conference for two days.

You might also be able to claim a drink or two as entertainment expenses, but shouting the whole team to drinks every Friday night might be questioned by your accountant and not included as a tax deduction.

In terms of exceptions, there are a few things you generally can’t claim. Fines or penalties, for example, can’t be recorded as tax deductible expenses.

Clothes and makeup are also harder to claim, unless you can prove they are specifically for work. For instance, tradespeople may be able to claim steel-capped boots because they are made for purpose.

Read more: Five claimable expenses to reduce your tax bill

Rule number two: Evidence

The second rule is proving you paid for the specific tax deduction expense.

Purchasing a new laptop will show up as a transaction in your bank and Xero account but it’s a good idea to hold onto the receipt so you have evidence of exactly what you bought. Ask the store to text or email you a receipt, or take a photo and upload it to an app on your phone. This way, any ATO questions that are raised will be easy to answer.

Ideally, you’ll work with your tax accountant and bookkeeper throughout the year to keep your spending records organised, so it’s not stressful at tax time.

Make it a habit to ask for a receipt and take a picture. You can also do a digital scan or have your bookkeeper do so.

Get help this tax time

Want to get ahead this tax time? Reach out to Mobbs & Company. We provide tax accounting services on the Sunshine Coast, in Caboolture and in Brisbane.

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