Small business owners who are relatively new to the scene may spend most of their time developing their products and services and getting the word out to their market. They may manage their own books as best they can and ensure that their cash flow is always adequate. But they may be missing a trick or two when it comes to their tax affairs and may not be taking advantage of the various deductions and write-offs available. If you find yourself in this position, what should you be aware of?
To begin with, many business owners may need to buy equipment, furnishings and other assets to get them underway. They may not realise that they can depreciate these assets over the long term and, consequently, reduce some of their tax liability. However, they cannot claim the total cost of these assets in their first financial year (with a few small exceptions) but must spread it over time. This is meant to reflect the fact that the asset is gradually declining in value and will eventually need to be replaced.
Be aware, however, that a complex set of rules may apply here, and it is best to get help from an accountant to follow the proper strategy.
While they may have to buy these assets upfront, a small business owner may also have to incur other expenditures before opening their doors. Don't overlook these costs and see if you can include them in your tax return as a prepaid expense.
Interest and Fees
As equipment and furnishings can be very expensive, it may be necessary to take out a loan or arrange an overdraft with a bank. In this case, don't forget to claim the interest and associated fees and include them in your business accounts. Once again, this will reduce the tax burden.
Home Office Expenditure
While you may work from independent premises and are already claiming rent, utilities and other costs, have you thought about your home office? Many people have been forced to work from home during the pandemic, and you may not realise that you can claim some costs here as well. Typically, you will need to apportion your home running costs based on the space that you have allocated for work. Make sure that you do not claim too much, but at the same time, do not miss out.
These are just some of the deductions and write-offs you can claim as a new small business owner. Always consult with an accountant, especially in the early days when you may not know all the rules and regulations.Share
29 November 2021
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