Tax tips for home-based businesses
Do you know what deductions you are eligible to claim as a home based business owner? Are you getting the maximum tax return due to you?
You may be able to legally maximise your return simply by expanding your knowledge of what you are eligible to claim.
Running a business from home can yield many rewards. Home-based business owners can enjoy not just financial rewards but also positive shifts in their work-life balance and improved motivation through being their own boss and working everyday on something that they are passionate about.
Small business owners are generally well versed in their chosen business field but may not necessarily know the requirements and eligibility criteria when it comes to all things financial and tax related. Knowing what you are able to claim as a deduction can potentially reduce the amount of tax that you are liable to pay.
In general, deductible expenses that are particular to home-based businesses are occupancy expenses, running expenses and motor vehicles expenses.
Occupancy expenses are expenses that are incurred in relation to owning, renting or using a home, not necessarily related to a home-based business. Such expenses include rental payments, mortgage interest, council rates and house insurance premiums.
If your home work space passes the interest deductibility test then you are able to claim occupancy expenses as tax deductions. Generally the space must be clearly identifiable as a place of business (for example, a sign identifying your business at the front of the house), is unsuitable for private or domestic purposes, is used exclusively or almost exclusively for carrying on your business and is used regularly by your clients. However, you need to be careful when claiming some of these expenses as the claiming of mortgage interest and rates may subject the property to Capital Gains Tax.
Running expenses are any increased costs that result from you using facilities within your home as part of your business activities and can includes expenses such as the electricity and gas cost of using a room, phone bills and cleaning costs.
These additional expenses incurred as a result of running your business from your home are usually able to be claimed as deductions, although the amount must only be the usage from the business not general house expenses.
There are various methods of calculating proportions and deduction amounts. Some ways include finding the percentage of floor space used the business, therefore being able to calculate the percentage of utilities used, or comparing the before and after the set up, utility expenses to find the usage. You should be able to provide information to support that your claim is reasonable and that the private or domestic proportion of the expense has been excluded.
Motor vehicle expenses another little known fact for home-based business owners is in relation to what can be claimed as motor vehicle expenses. Unlike most workers home-based businesses can generally claim a deduction for any travel costs incurred in business related travel. This means that if you are carrying on a home-based business you may be able to claim a deduction for travel expenses such as going to a client’s premises, purchasing equipment or supplies and doing your banking, mailing or visiting your tax advisor.
The most vital thing to remember when running your business from home is to document everything! You should keep all receipts and tax invoices, even though they may seem insignificant, together they may just add up to help you deduct a substantial amount from your gross income and thereby significantly reduce the amount of tax that you re liable to pay.
The optimal way for you to achieve the best tax rewards for your home business is to substantiate everything you think will be deductible, but to also have a proactive accountant.
A proactive accountant will not only do the number crunching, but will look at your records and advise for and against deductible areas in your business. This way you will ensure you get the most from your home business.
If you would like to speak with one of The Quinn Group’s many proactive accountants about how you can legally claim the maximum deductions for your home-based business or for any other tax or accounting queries contact us by calling 1300 QUINNS or click here to submit an online enquiry.