A Short Guide to Small Business Tax Deductions

In running a business, you will have income and expenses. Most costs for running a business are tax-deductible. Examples of small business tax deductions include:

• Accounting
• Advertising
• Bad debt
• Bank fees and charges
• Bookkeeping
• Business travel
• Building maintenance
• Commissions and fees
• Depreciation and amortization
• Freight and transport
• Salaries and wages
• Professional services – such as accountants and lawyers
• Office supplies
• Interest on business debts
• Insurance premiums
• Motor vehicle expenses
• Public relations expenses
• Rent
• Utilities
• Professional association memberships
• Education and training
• Software, books and magazines
• Telephone.

Remember that each deduction you are claiming needs to have been spent on business-related items and not be a personal expense. If an expense is for a mix of business and personal use, you only can claim the portion that is related to your business. For example, if you work from a home office and use your home internet for business, you should not claim the entire amount as a business expense if some of your internet use is personal.

In addition, whatever you claim as a small business tax deduction must be backed by documentation. So keep all invoices and receipts for your business expenses. If you are starting a new business, ensure that you get a separate business bank account. If you try to use your personal bank account for business, it will be much more difficult to track. You will also want to set up an accounting program to track your business income and expenses.

Travel expenses are a sub-category or business expense that raise questions when it comes to tax deductions. A business person or an employee can claim business travel expenses including air, bus, rail and taxi fares. For overnight business travel, you will need to keep written evidence of the costs incurred. For business travel over six consecutive nights, you will need to record:

• The type of activity during your travel
• When the business activity began
• How long the business activity lasted
• Where you engaged in the activity.

For example, if you are travelling on a sales trip, you can keep a diary outlining who you met with, the location and time, the subject of the meeting.

You can claim a small business tax deduction if you or an employee are travelling for business purposes. This includes modes of transport such as aeroplanes, trains, buses and taxis. For overnight trips, you will need to have written evidence of all your travel expenses. If travelling on business for six or more consecutive nights, you will need to keep some form of travel diary to document your expenses. Learn more about deducting business travel expenses.

In the past, you couldn’t deduct the cost of a large asset in one financial year. Most assets had to be depreciated over several years, so only a portion of the value could be deducted in one year. The instant asset write-off maximum amount has been increased over the years, and now there is no asset value limit. This is in effect until 30 June 2022. For example, a manufacturer purchasing a piece of factory equipment for $145,000 can now deduct the full amount in a single year instead of having the spread it over several years. To qualify for a particular financial year, the asset needs to be purchased, installed and ready to use by the 30th of June of that year. 

Learn more in How to Unlock the Full Benefit of the Instant Asset Write-Off Scheme.

Tax deductions for motor vehicle use will depend on several factors, including the business structure (sole trader, company, partnership, trust), the type of vehicle and how the vehicle is used (business or personal).

The types of motor vehicle expenses you can deduct include:

• Depreciation
• Fuel and oil
• Insurance
• Lease payments
• Loan interest
• Registration
• Repairs and servicing.

You can’t deduct motor vehicle expenses related to private use and commuting between your home and place of business. If you travel from your business to other locations for business purposes, you can deduct this portion of vehicle use.

For making small business tax deductions, you will need to keep documentation for motor vehicle expenses, including:

• Loan or lease documents
• Tax invoices for vehicle running and maintenance expenses
• Registration and insurance papers.

Home-based business owners can make certain small business tax deductions for the portion of their home they are using the business for, including:

• Occupancy expenses – rent or mortgage interest, council rates, land tax, home insurance premiums
• Operating expenses – utilities, landline, cleaning, furniture and furnishings.

If you do claim occupancy expenses, you will need to claim a capital gain or loss when you sell your home.

Small business tax deductions can be confusing, so it will help to get expert assistance. A registered tax agent will be able to assist when completing your business tax return.