Small business in Australia can be a gratifying enterprise, but many small business owners can get frustrated over paying more taxes because of deductions that they have missed. The Australian taxation office (ATO) presents many opportunities to cut on the taxable income but due to ignorance or poor record-keeping, it frequently leaves the money on the table. Such neglect can impact on financial resources particularly where one has to deal with limited budgets and complicated policies and thus tax season is an ordeal and not a saving opportunity.
This informational guide will cover five tax deductions which most small business owners overlook and offer practical advice on how to claim them so that you can take advantage of these deductions. Moreover, with the help of UBS Accountants, you may turn the difficulties with taxation into opportunities so that you could get more of your hard-earned income and remain compliant.
1. Motor Vehicle Expenses
Most of the small traders or business owners fail to claim or underclaim vehicle use deductions which are related to business aspects. These costs can be added up during the visits of clients, delivery, but it is possible to save something, but bad documentation means that they are missed.
What You Can Claim
– Fuel, maintenance, insurance, and interest on a vehicle loan for the business portion of use.
How to Claim
– Maintain a 12-week logbook to calculate your business-use percentage, applied to all vehicle expenses.
– Claim up to 5,000 business kilometers annually at 85 cents per kilometer (2024-25 rate), covering all running costs.
– For non-cars (e.g., trucks), keep receipts for business-related expenses.
Common Pitfalls
– Claiming personal trips as business-related.
– Neglecting to keep a logbook or receipts.
2. Home Office Expenses
As remote work is becoming more common, a lot of people are not able to claim home office expenses: either because they underestimate their expenses or cannot properly determine how to use them. This may be quite annoying especially when one works at home full-time.
What You Can Claim
– Running expenses like electricity, phone, and internet usage tied to business activities.
How to Claim
– Claim 70 cents per hour worked from home (2024-25 rate), requiring a record of hours.
– Deduct precise expenses with detailed records of business-related costs.
Common Pitfalls
– Inaccurate tracking of work hours.
– Claiming non-business spaces or mixed-use expenses incorrectly.
3. Professional Development and Self-Education
Skills investment is essential, but any such costs on training or education are frequently overlooked because of misunderstandings regarding the eligibility. This causes the owners of businesses to pay out of pocket in the cases where they could offset the growth opportunity.
What You Can Claim
– Course fees, conferences, textbooks, stationery, and related travel/accommodation costs for current business skills.
What You Can’t Claim
– Training for a new job or unrelated career paths.
How to Claim
– Ensure the expense directly enhances current business skills and retain all receipts.
Common Pitfalls
– Claiming irrelevant courses.
– Omitting associated travel or material costs.
4. Prepaid Expenses
The taxes on prepayments such as insurance or subscriptions are often neglected, (immediate tax relief is not received by the business). This is a watchdog that can narrow cash flow particularly in small operations that look forward.
What You Can Claim
– Prepaid expenses for services or goods in a later income year.
How to Claim
– Eligible for businesses under $10 million turnover if the service period is 12 months or less, ending by the next income year’s end.
– Spread costs over the service period if the 12-month rule doesn’t apply.
Common Pitfalls
– Failing to recognize eligible prepayments.
– Incorrect apportionment of longer-term expenses.
5. Bad Debts
Unpaid bills may be an economic liability, but most of them will not show them off as expenses and lose an opportunity to retrieve losses. This mostly occurs among businesses that are new to accrual accounting.
What You Can Claim
– Debts written off as unrecoverable, previously included as assessable income.
How to Claim
– Document collection efforts (e.g., emails, legal notices) and write off before the financial year ends.
Common Pitfalls
– Lack of documentation for uncollectible debts.
– Writing off debts not reported as income.
Save More with UBS
Failing to take these tax deductions into account may mean thousands of dollars per year to the Australian small business, which would have been a golden opportunity to see an increase in their income. With proper documentation and knowledge of ATO regulations, you will be able to claim home office expense, vehicle expenses, professional development, prepaid expenses and bad debts with a sense of confidence. Besides, by collaborating with UBS Accountants, you will be able to maximize these benefits without violating the rules.