Top 7 tax deductions for tradies

Tax deductions are a great way to claim back much needed cash at the end of financial year. There are many expenses that you are able to claim in your tax return, the top 7 tax reductions for tradies are explained below:

1. Transport expenses

As a tradie chances are your van or ute is your main method of transportation for taking you from job to job. As long as you can prove that you are using your vehicle for business purposes then you are able to claim back the purchase cost and any ongoing operating costs associated with the vehicle.

There are two different ways in which you can track your mileage in order to claim back the cost of running your vehicle for business purposes: the logbook method and the cents per kilometer method. If you choose to use the log book method you will need to prove your odometer readings for a time period of at least 12 consecutive weeks. By tracking the mileage you can claim the percentage of vehicle expenses allocated to business use, including running costs and depreciation. The cents per kilometre method allows you to claim $0.66 per kilometre on up to 5000 kilometres of business travel.

2.  Tools and equipment

You can claim GST credits for the tools and equipment that you purchase to help you run your business. Items that cost up to $300 can be claimed as a tax deduction immediately. For items that cost over $300 you are able to claim a deduction on the items decline in value.

3. Clothing

If your profession requires you to wear specialist protective clothing such as steel capped boots, high-vis jackets, safety glasses and helmets can be claimed as a deduction. It is also possible to claim GST credits for the cleaning of your work clothes. Should the cost of cleaning exceed $150 you will need to provide receipts. For cleaning specialist work clothing on a regular basis you can claim a deduction of $1 for an entire load of work clothing; or $0.50 when the load is partially work wear.

4. Training courses, licences and certificates

If you’re undertaking any training courses or studying for any qualifications that relate to your trade, you are able to claim back the cost. You must be undertaking said qualification or training course to improve or maintain your skills in your profession only in order for them to be tax deductible.

5. Communications

You’re eligible to claim back the cost of work related phone and internet expenses. For claims more than $50 you need to work out the percentage that is used for work time only over a 4 week period, this can then be applied to the full income year. You will need to prove this with records in the form of bills, electronic summaries or diary entries.

6. Travel expenses

You can claim expenses associated with travelling for work purposes, such as accommodation, meals and transportation costs  i.e. taxi fares. These costs are deductible as long as you have proof of purchase in the form of receipts.

7. Union and association fees

The cost of union fees or subscriptions to professional associations are claimable in your annual tax return. Use your statement of fees or subscriptions paid as proof of your membership when submitting your return.

Other small business tax deductions

Everyone has tax obligations and must part with a percentage of their income at the end of every year. Business owners have additional tax burdens based on their business process and profit. It’s important that they conduct a break-even analysis and examine expenses and income carefully to determine how much they need to pay every year.

What is a small business?

Before you look at possible tax deduction options, you need to know whether your business is legally considered a small business. According to the government, businesses that have an annual turnover of $2 million or less are considered small. All of your businesses, including connected and affiliated ventures, are included in this bracket. This means you can’t split your business in order to remain under the $2 million mark.

Small business tax deductions you can claim

As a business owner, you know that you need to spend money to make it. Generally, the biggest portion of your income is funnelled back into your business to pay for essential business expenses and to generate more income. You can get tax deductions for most of the money you cycle back into your business. Many small business owners attempt to abuse this system and claim deductions for frivolous and unneeded expenses. Conversely, many miss opportunities to deduct tax and end up paying more than they need to. Here is a small business tax deductions list that most businesses can lay claim to:

1. Advertising and sponsorship – Advertising raises awareness of your brand and brings customers to your doorstep, which generates income and profit for your company. Any investment you make towards advertising is tax deductible because it is an essential business expense. You also get tax deductions for advertising during the recruitment process, as hiring employees is also an essential business expense.
2. Business-related travel – Travelling for business can be an expensive affair, especially if you need to travel to distant locations on a regular basis. As this travel is needed to help generate income, the expenses are deductible. You just need to maintain a clear record of your expenses. Preserve all your receipts, keep copies of your itinerary, record all your expenses and provide reasons for your travels. All of these expenses will be tax deductible. Make sure you don’t include any expenses that are counted as entertainment. For example, if you visit a different country and attend a concert during the business trip, you can’t claim deductions for the money you spent on the concert.
3. Bad debts – Small business owners often struggle with bad debts, especially when they’re first starting out and have problems with cash flow. Some business debts have to be written off because business owners simply don’t have the resources to pay back the debt. This debt should be included as accessible income in the current year or previous year’s statements. It should also be written off as bad in the same year in order to claim a deduction.
4. Borrowed money – If you need to borrow money you can claim deductions on that. You just need to prove that the money you borrowed helps provide accessible income to your business. Expenses on borrowed money can be legal costs, valuation fees, overdraft guarantee fees, registration fees, etc. These deductions are different from the deductions you get for paying interest on borrowed money, so make sure to claim both.
5. Fringe benefits – If you provide fringe benefits to your employees, it’s considered a business expense and you can get tax deductions on it.
6. Repairs and maintenance – Repairs and maintenance of your commercial property is an essential business expense and helps generate income as well. You need to make sure these expenses aren’t considered “capital costs.” You can claim deductions for thing like painting, plumbing, cleaning, up-keep, machine servicing and maintenance.
7. Insurance – A number of insurance schemes are tax deductible as they’re considered essential business expenses as well. For example, you can get deductions for Worker’s Compensation, fire, public liability, vehicle, theft and loss of profit insurance premiums.
8. Superannuation funds – You get deductions for contributions you make to your employee’s superannuation funds. You can also get deductions for your own superannuation funds.
9. Salary – Salaries and wages paid to employees and workers are tax-deductible because they contribute towards your company’s revenue and profit. However, you need to keep in mind that all salaries are connected to your business and generate profit for your business. Sole traders can’t claim salaries paid to themselves.