Before you go rifling through your pile of receipts come tax time, you may want to take a moment to better understand what tax deductions are available, and what you need to prove to qualify for a deduction. The type of deductions you can claim also depends on whether it is for an individual or a business.
What is a tax deduction?
When submitting a tax return, you are entitled to claim deductions for expenses incurred while earning an income. If the expense includes both personal use and work-related use, you will have to prove how much of that expense was related to your business or job. We have compiled a short guide to the most common deductions below.
The rules for claiming INDIVIDUAL work-related deductions
If you want to claim individual tax deductions for work/business on your tax return, you must be able to prove the following:
- The expense must be directly related to your work
- You must have retained the receipt
- You must have spent the money yourself
- You must be able to prove that you were not reimbursed for the expense
The rules for claiming BUSINESS tax deductions
Similar to claiming deductions on an individual tax return, a business must also abide by certain criteria when it comes to claiming deductions on business tax returns. These include:
- The expense must have been for business use (not private use)
- You must keep a record of any expenses claimed
- If the expense is for a mix of business and private use, you can only claim a portion of the expense.
What deductions can I claim on my personal tax return?
Several work-related expenses are claimable on an individual tax return. Some of the most commonly claimed deductions include:
- Vehicle and car expenses – when used to perform your work-related duties. For more info click here.
- Travel expenses – when you stay away from home overnight for a work purpose. For more info click here.
- Clothing, laundry, and dry-cleaning – for occupation-specific, protective clothing and distinctive uniforms. For more info click here.
- Self-education – when it relates to your employment activities. For more info click here.
- Tools and equipment – are used to earn your income. For more info click here.
- Working from home expenses – including ‘running expenses’ (a percentage of electricity, phone, utility, internet, and office furnishing expenses). For more info click here.
- Other occupation-specific deductions
Working From Home Tax Deductions
With COVID lockdowns changing the way we work, many of us have already claimed to work from home expenses for the 19/20 financial year.
There are several ways that you can calculate your home office expenses:
- Shortcut method: a temporary method valid to use on expenses up until June 30, 2022.
- Fixed-rate method: 52 cents per hour worked from home.
- Actual cost method: If you meet the eligibility and record keeping requirements, you can claim for work-related expenses such as electricity and gas, cleaning, phone and internet, computer consumables, and the decline in value of depreciating assets.
What deductions can I claim on my business tax return?
The good news, most of your business expenses can be claimed as a deduction. There are also several concessions, offsets, and rebates that your business also may qualify for. How you claim deductions varies from one business structure to another. Speak with your accountant to ensure your deductions are maximized and calculated using the most appropriate method. Some of the most common business deductions fall under the following categories:
- Operating expenses: this might include office equipment, wages, fuel, travel, and other ongoing running costs.
- Capital expenses: this might include investment in machinery and equipment. For more info click here.
Here at TW Accounting, we provide our clients not just with an accountant, but the support of an entire accounting firm, dedicated to growing your business. Offering everything from regular bookkeeping and payroll services to specialist taxation advice. If you want to ensure every deduction you are entitled to is claimed, contact TW Accounting today.