Understanding your eligibility for deduction claims
Tax season is once again upon us as we conscientiously hone our focus on the critical date of May 15th; and, as expected with any important deadline period, most of us experience an increasing sense of urgency in prioritizing and having our taxes lodged on time.
Through my exposure in both the accounting and finance sector, I have personally witnessed so many clients hastily contact their accountants with the desire of single-mindedly getting the deadline out of the way. While obviously done with the best intentions in mind, this approach has – more often than not – affected these clients’ potential to maximize their returns.
As the title of this article suggests, I am, of course, referring to ‘deductions’. Though most of us are already familiar that we can claim deductions on a variety of materials, expenses, and activities. This is still an area where quite a few of us rush over and inadvertently miss out on quite a few potential deductions.
In this first segment of the Tax Checklist, I will be going through a few examples of common deductions and how to identify if you are entitled to a claim.
Common Deductions to take note
1. Basic Expense Deductions
Business activities related to income generation are tax deductible. Make sure to keep your tax invoice as proof of expense! Did you know that Computer hardware, self-education expenses, and phone expenses can be tax deductible? Find out more about the range of deductions that you may be able to claim by visiting the ATO website.
2. Fringe Benefits Tax
FBT is applicable to employees and directors receiving privileges or services from their employee. Typical FBT examples are gym and health insurance memberships. As part of your FBT expense, you may be able to claim GST credits on expenses. Additionally, exemptions and deductions may apply to your circumstances. Exemptions include work-related items such as a motor vehicle that is used 100% for business purposes or minor FBT benefits (less than $300) where a benefit is infrequent, isolated and not part of the ongoing remuneration. Do not forget to visit your trusted accountant or check out the ATO website for a more comprehensive explanation about fringe benefits.
Prepayments as the name suggest, are payments made in advance. Small businesses are allowed to deduct prepayment expenses provided the prepayment expense is for less than 12 months and does not extend past the financial year 2018. For instance, you have Prepaid your business insurance in June 2018. The Insurance package purchased covers insurance ranging from July 2018 to June 2019. This expense can be written off in the financial year, 2018. Visit the ATO to find out more about your prepayment claims.
4. Website costs (commercial)
Did you know that tax deductions are not only limited to hardware? Costs related to your website, such as the development of the website and maintenance costs such as hosting costs can also be tax deductible. Of course, the purpose of these websites must be in relation to the operations of a commercially viable business. If you are still unsure whether you or your business are eligible do not hesitate to contact your trusted accountant or visit the ATO website for more information.
5. Gifts & Donations
Gifts and donations made to deductible gift recipient organizations can be tax deductible.
In order for donations to be classified as a tax deduction, ensure that:
The charity in which you wish to donate is a Deductible Gift Recipient
There is no potential benefit to you or the organization you represent as a result of the donation (ie winning a raffle ticket prize).
Your charity donation can reach your desired cause or specific wishes.
Find out more and receiving tax-deductible gifts or claiming tax deductions on your donations by visiting the ATO website.
Super personal contributions are a common and tax-effective method to increase your wealth whilst reducing your tax burden. However, this option is not always beneficial. Make sure to discuss with your accountant the prospect of reducing your taxable income through super contributions. Remember, never hesitate to contact your personal accountant to have a more substantive understanding of your superannuation tax incentives or visit the ATO website to find out about your eligible deductions.
Next steps to take
Taxation and accounting are both complex fields. Yet, these are areas that will affect each of us regardless; only through our attempt to understand it can we confidently navigate it. As I have previously mentioned, tax season can often be very daunting for all of us – accountants and clients alike – however, it is still very important that both you and your accountant maintain a clear channel of communication in order to achieve the best interests for yourself and your business. Contact your accountant today and get a head start on your taxes!
Written By: Ricardo Carlos
An accountant armed with the skills of a marketer and a deep reverence for the interconnectedness of a business’s operations and how it is affected by the economy as a whole, Ricardo yearns to fuse his talents as an accountant and expertise as a marketer to help his clients establish a more holistic view of their business and its place in the community. As an Accodex Partner, Ricardo wants to use his skills as a mediator and communicator to simplify accounting to his clients. He firmly believes that fear and inadequacies can be overcome if clients are properly guided to appreciate the importance of accounting within their business.