End Of Financial Year 2024: Top Effective Strategies For Small Business Tax Deductions
Before EOFY 2024, small businesses can start looking into ways to maximise their tax deductions.
The Australian Taxation Office (ATO) provides numerous opportunities for businesses to reduce their taxable income through qualified deductions.
However, the challenge lies in understanding which expenses qualify and how to effectively claim them when tax time comes.
This quick read will cover a few strategies small businesses can look into for tax deductions.
Criteria For Tax Deductible Expenses
Let’s briefly discuss how tax deductions work first.
Australian tax law usually allows businesses to claim tax deductions for certain costs directly tied to earning income and some under specific expense categories like donations/gifts.
As outlined by the Australian Taxation Office (ATO), you will be able to claim a tax deduction if your expenses meet the following criteria:
- Directly Related To Income: The expense must be directly linked to producing assessable income for your business and other employment duties.
- Necessary For Business: The expense must be essential for running your business, not a personal cost. If it’s partly personal, you can only deduct the business portion.
- Recorded: Keep proper receipts or invoices to prove the expense.
However, it’s important to note that the ATO requires that the expenses you claim must have been paid for by yourself and not reimbursed. Private costs aren’t eligible.
Other Expenses You Can Claim
Apart from work-related expenses, there are specific categories that are typically eligible for tax deductions, even if they aren’t directly tied to everyday business operations.
You can claim these expenses in your tax return under the specific expense category (where available) or as the “Other“ immediate deduction.
- Deductible Gift Recipients (Donations And Gifts): Contributions to organisations with deductible gift recipient (DGR) status are tax deductible.
- Expenses Related To Earning Investment Income: Expenses linked to investment purposes, such as interest income expenses, qualify for a tax refund.
- Personal Super Contributions: You can claim a tax deduction for contributions made to your superannuation contributions from after-tax income.
- Income Protection Insurance: Another example of deductions you can claim are premiums for policies that cover loss of income due to illness or injury.
- Tax Affairs Management Costs: You can also claim a deduction for expenses associated with managing your taxes. This includes fees paid to tax professionals and hiring a registered tax agent for professional tax advice.
Strategies For Tax Deductions
The strategies below may significantly reduce your taxable income.
Furthermore, business owners may want to consider tracking their business expenses, filing on time, and checking for job-specific deductions like travel expenses and home office.
Educational expenses and union or subscription fees are further examples of deductions you can claim.
Maintain Accurate Records
Keep detailed receipts and documents for all business transactions.
This includes electronic records of bank statements and invoices.
Accurate record-keeping can support you when you claim a deduction during tax time and also protect you in the event of an ATO audit.
Mind The Tax Deadline
Be aware of the tax return submission deadlines.
The financial year in Australia starts on July 1 and ends on June 30 of the following year. Any tax returns must typically be lodged by October 31.
So, missing this deadline for submitting your income tax return can potentially lead to penalties.
If you’re a small business owner, you may want to consider hiring a registered tax agent to help you pay tax and lodge your tax return.
Check For Job-Specific Tax Deductions
Several professions have unique tax benefits. Here are some jobs that can claim tax deductibles in Australia:
- Trades & Construction: Tools, uniforms (with logos), union fees, and self-education courses.
- Teachers: Registration fees, reference books, educational materials, technology depreciation, and out-of-pocket expenses for school excursions.
- Healthcare Workers: Occupation-specific clothing, scrubs, conferences, travel expenses, and professional subscriptions.
- Office Workers: Briefcases, home office equipment, a work-related vehicle (public transport or car expenses)
You may refer to the ATO’s Occupation and Industry-Specific Guides for further guidance tailored to your profession and other work-related expenses.
Potential Educational Expense Deductions
Investing in education may be claimed as a tax deduction.
However, note that you will only be able to claim these expenses as tax-deductible if they are directly related to your business.
Here are a few potential educational expense deductions you can claim on your tax return:
- Courses & Seminars: These can only be claimed if they lead to a formal qualification that improves your current job skills or knowledge (not for a new career).
- Tuition & Fees: Includes university courses, textbooks, and materials. (But not for HECS-HELP or similar loans.)
- Travel: Some courses or conferences may require travel for attendance. Overnight stays may qualify for meals or accommodation.
- Technology: Computers, software, and other tools used primarily for work-related education (with depreciation rules).
- Expenses Incurred Earning Interest: For instance, the money borrowed to pay for education.
Determine Work From Home Expenses
You may qualify for income tax deductions if you regularly work from home and have records of additional home office expenses.
The revised fixed rate method for work-from-home deductions, effective from July 1, 2022 (the previous financial year), allows you to claim 67 cents per hour for various work-related expenses.
Common work-from-home deductions include:
- Utilities (work portion): Electricity, gas for heating/cooling/lighting.
- Internet & Phone Bill: Usage of home and mobile data/phone plans.
- Stationery & Office Supplies: For items like pens, paper, etc.
- Depreciation: Wear and tear on equipment (computers, desks).
However, for business owners using their home as their principal place of business, separate guidelines apply under “Deductions for home-based business expenses.”
Check For Union And Subscription Fees
You can claim deductions for membership fees to professional organisations, unions, and subscriptions to trade or professional journals if they are relevant to your business.
Here are the following expenses you can claim for extra tax deductions:
- Union Expenses: This includes expenses that help earn income (e.g., negotiation fees for better wages).
- Subscriptions: Any subscriptions to relevant professional or trade associations are eligible for deductions.
- Bargaining Agent Fees: These include fees paid to unions for negotiating work agreements.
- Limited Fees: This covers membership fees to non-essential professional associations.
NOTE: You won’t be able to claim deductions for a fund that supports members during financial hardships or industrial actions, as these are not incurred in your assessable income.
Conclusion
Claiming tax deductibles doesn’t have to be complicated. With this guide, you can potentially reduce your taxable income and significantly boost your business’s financial health.
This means you pay tax on a smaller portion of your income, which results in a higher refund.
While a tax refund can be helpful, a well-rounded financial strategy is key to long-term business success.
Small business owners may want to pool the income saved from tax deductibles with a loan from Lumi for greater growth.
Moreover, if you have a small business with an annual turnover of less than $10 million, you can take advantage of the $20,000 Instant Asset Write-Off to purchase tax-deductible assets before EOFY.
If you need extra funds for this tax incentive, consider applying for the Lumi Business Line Of Credit.
It’s the ultimate money-on-demand solution for your business’s EOFY purchase needs. The best part? It provides full flexibility at zero risk, meaning you can spend as much or as little as needed and only pay for what you actually use. No additional or ongoing fees.
