If you operate as a sole trader business, staying on top of your taxes and knowing what allowable deductions are relevant to you can save you a lot of money in the long run.
You should certainly seek professional advice from a registered tax agent when the financial year-end rolls around, to ensure all your tax deductions are being claimed.
There are many well-known tax deductions that people claim for, but as a sole trader, there are some lesser-known grey areas that can be utilised.
We’ll discuss the 6 deductions for sole traders that can help you save money.
1) How Vehicle Expenses Can Be Deductions For Sole Traders
Many sole traders who rely on their car for their business will find that it might be their biggest tax deduction to lessen their tax burden.
- You can claim tax deductions for your vehicle expenses if you have to travel from one job to another as part of your work.
- You can claim vehicle expenses if your car is less than one tonne and carries less than nine passengers.
Here are the vehicle expenses you can claim for:
- depreciation,
- fuel,
- insurance premiums,
- lease payments,
- loan interest,
- oil,
- registration,
- repairs and
- servicing.
Take note that car expenses can’t be claimed if you simply drive from your home to work every day. This also counts if you are working in a different location or outside of standard business hours.
The circumstance where you are able to claim for driving from your home to your place of employment is when your workplaces shift regularly during the day, meaning you drive between sites.
In this case, you can choose between two methods of calculating:
- cents per kilometre or
- logbook.
2) How Tools and Equipment Can Be Tax Deductions
A sole trader often needs tools and equipment as part of capital expenses in order to work. You can claim deductions for tools and equipment as long as they are used for business more than half of the time.
For example, if you bought a laptop but use it more personally than for business purposes, you can’t claim a deduction for the laptop.
- If a tool or piece of equipment used in your business was purchased for over $300, you can claim a deduction for the depreciation over a few years.
- If you spent less than $300, an immediate deduction can be claimed for the expense.
- If you are a business using “temporary full expensing,” the $300 threshold doesn’t apply. You can write off the tool’s or equipment’s value immediately until 30 June 2022.
Small businesses must apply the simplified depreciation rules to claim an instant asset write-off.
3) How Travel Can Be a Tax Deduction
You can claim deductions for travel if you have to travel to a specific location in order to do your job – for example, if you are a photographer who booked a wedding in a different state.
These operating expenses that you can claim also include all fares, accommodation and meals incurred while performing your duties, so take care to keep all receipts safe.
If you received any kind of allowance during this time, whatever you spent the money on can’t be claimed as a tax deduction.
4) When Clothing and Laundry Are Allowable Deductions
Clothing and laundry typically are seen as domestic expenses, even if you wear the clothing to work.
It becomes claimable when the uniforms are compulsory for work and are distinctive to the workplace. This could be branded overalls if you are a plumber.
You can claim expenses related to personal protective equipment such as protective clothing. If you need specific clothing to safeguard against risks and avoid injuries, such as steel-capped boots, goggles, insulated shoes or high-vis vests, these items are tax-deductible.
5) What Are Home-Based Business Expenses?
Many sole traders work from a home office. You are able to claim home office running expenses such as:
- cleaning,
- depreciation of equipment,
- electricity,
- furniture
- gas,
- internet expenses.
- laptop and
- phone.
If you want to claim occupancy expenses, for example when your workplace occupies your home such as a studio, you will need to prove to the Australian Taxation Office (ATO) that you use that room for business purposes only.
Occupancy expenses can be worked out by determining the percentage of the property used for business based on the floor size. They include:
- house insurance,
- mortgage interest,
- rates and
- rent.
6) How Self Education Can Be a Business Deduction
As a sole trader, competition in your industry can be tough. If you do any courses or diplomas to improve your knowledge and skills that can lead to increased income, you can claim them as a tax deduction.
Take note, this doesn’t apply if the education is:
- general,
- in an unrelated field or
- is intended to grow your skills so that you can get another job.
Other Operating Expenses That Can Be Claimed as Tax Deductions
While the above-mentioned points can be confused between business, private or domestic expenses and need further explanations to clarify, the following running expenses are more well-known as they are more straightforward:
- accounting expenses,
- advertising and marketing,
- bank fees and interest on bank loans,
- insurance premiums,
- legal expenses
- repairs and maintenance for work tools and equipment,
- software subscriptions,
- tax advice and lodgement and
- union fees.
Key Takeaways
When it comes to sole traders claiming deductions, proof is the most important thing. Make sure to keep and store all relevant receipts and contracts, and bank statements and financial records can be used too.
Your business-related expenses must have already been paid for before you can claim. Remember, the expenses are only viable if they directly influence your ability to earn an income. You cannot claim business-related expenses if they were for private or domestic use.
Your assessable income as a sole trader will be different to someone else’s, and in the same way, no-ones tax returns will be alike. Sole traders are eligible for different things depending on their circumstances, and therefore every tax deduction will be different.
It is always worth it to know what you are able to claim for so that you can ensure you’re claiming all of your eligible tax deductions. KNS Accountants can help you make sure that nothing slips through the cracks.
Contact us today to start your tax planning and get started on your income tax returns.
Disclaimer
Please note that every effort has been made to ensure that the information provided in this guide is accurate. You should note, however, that the information is intended as a guide only, providing an overview of general information available to contractors and small businesses. This guide is not intended to be an exhaustive source of information and should not be seen to constitute legal or tax advice. You should, where necessary, seek your own advice for any legal or tax issues raised in your business affairs.
