When you launch your own small business, you may be surprised by how often you’ll be paying for business expenses like supplies, equipment, inventory, and insurance. Daily and monthly costs can quickly add up! Many of your self-employed business costs can be claimed as a business expense and reimbursed to you by the company, but it’s not always obvious which business bills can be claimed.
Check out our 7 business hacks for freelancers and sole traders looking to claim as many of the right business costs as possible.
1. You can (and should) claim public liability insurance premiums
Your business insurance is an easy claim and should always be taken as a business deduction. Public liability insurance is a true necessity to do your work and keep your business protected.
Do you know if your current public liability insurance policy is the best possible price and coverage available? Are you currently shopping around for an alternative public liability plan?
Make your busy, freelancer life easy by going to Public Liability Australia’s website. There you can do comparison shopping quickly and efficiently. It only takes a few minutes to get a public liability insurance online quote
and coverage details sent right to your inbox. Or you can call a Public Liability Australia agent instead.
2. Claim business expenses from before you became an official business owner
This might be surprising but it’s really true! If you incurred any costs prior to officially launching your new business, you can still claim those receipts. For instance, if you bought business stationary or paid someone to set up your company website before you even had a customer, then you should claim those costs on your taxes.
Keep in mind, to do this you have to satisfy these conditions:
● The cost must be a business expense you would claim even if you paid it after you began trading.
● You must incur the cost within seven years of beginning to trade.
3. Claim use of your home office
If you’re a sole trader that works from a home office, then you can definitely claim a percentage of the actual costs spent running your home. This means expenses like your monthly rent, light, heat, and council tax. Or you can just claim a standard rate allowance instead of itemizing your home office expenses.
The amount of money you can claim in your self-assessment tax really depends on the type of business you run and the type of work you do at home.
4. You can claim the use of your own car
If you’re a freelancer then you should know there are two different methods of claiming use of your car as a legitimate business expense. You have the choice of claiming each business mile travelled or claim the percentage of business use for your vehicle.
Remember, you can’t claim for travels that were made for personal reasons. You can only claim use of your car for business reasons like driving to meet a client or driving to attend a special work meeting. If any portion of the trip was personal, then you must deduct those miles from the total mileage claimed.
5. Claiming equipment you already own is possible
Do you already own a laptop that you’re going to use when you begin freelancing? Do you have a printer and scanner too? The good news is you might be able to claim some of the equipment’s value even though you purchased these items before starting your business.
The way to approach this is by figuring out the laptop’s market value at the time you began using it as a sole trader. You can do that by checking online for the current value of similar equipment, of a similar age, with a similar amount of wear and tear.
If you’re self-employed, you can only include the business percentage of the equipment’s market value. In other words, let’s say you use your computer about 50% of the time for work-related activities. That means you can claim 50% of the laptop’s current market value.
6. Food and drinks can’t always be claimed
Food and beverages, you buy while meeting with a new business vendor or snacks you bring to a client meeting are certainly a cost to doing business. Unfortunately, you can’t always claim food and drink costs as a business expense.
That’s because the ATO believes that every person must eat to live. Sole traders must eat despite their business operations, so you usually can’t claim the cost of food and drinks purchased while working. Of course, there is an exception if you’re traveling for work and:
● You’re away from home a minimum of one night
● The business trip is outside your normal work pattern
● Your work involves traveling daily, like being a self-employed taxi or delivery driver
That last point is one that has created a lot of debate among accountants. How do you define “itinerant” work? Are most self-employed workers itinerant because they travel regularly to visit customers? Or are itinerant businesses only those based around travel?
When in doubt about your own food and drink claims, talk with an experienced accountant. It’s best to get their professional advice and avoid making an error when claiming tax relief.
7. Keeping paper receipts isn’t necessary
In the old days, you had to keep paper receipts to support your business expense claims. That meant lots of filing cabinets, manilla folders, and big boxes filled with paper receipts from years past. In our digit age, that’s all changed!
Now you can log your receipts electronically via accounting software or financial apps. Storing electronic versions of your receipts is considered just as valid as paper. Keep in mind, you must scan and save both the front and back of every receipt.
Keeping all your business expenses in an electronic format can also make life a lot easier for both you and your accountant. After all, scrolling through digital files sounds a lot better than digging through boxes of paper.