What costs may you claim on your taxes?
Because it will soon be time for you to file your tax return, you should start thinking about any expenses you had during the previous fiscal year that was tied to your job or generated money for you.
It’s possible that you can minimise the amount of income that’s subject to taxation by writing off certain expenses as tax deductions.
Consider the following, as a general rule, in order to determine which costs you may be eligible to deduct from your taxes:
Was the expenditure immediately relevant to the performance of your work or another activity that generated income?
Have you already spent the money, but your company has chosen not to compensate you for it?
Do you have a formal record of the expense, such as a receipt or a bank statement, to prove that you made the purchase?
You need to establish the portion of the spending that is relevant to your business or income-generating activity if the expense was for both work and personal use (for example, using the internet at home for both work and personal usage).
How exactly do tax breaks and deductions work?
When filing your tax return, you have the legal right to make deduction claims for costs that you incurred while working. These are referred to as “work-related deductions.” In order to be eligible to submit a claim for a deduction relating to your place of employment, you must satisfy all of the following requirements:
- You need to have a record to demonstrate this.
- It appears that you have used the money on your own.
- It appears that you were not compensated for the costs incurred.
- The expenditure ought to have some bearing on your work.
Only the portion of the cost that was attributable to your employment can be deducted from your income tax return, even if the price was incurred for both personal and professional reasons.
What are the various categories of deductions that you are eligible to claim?
Expenses incurred for the vehicle and travel
When it comes to the costs of travelling for work and using your vehicle, the requirement to keep records should be the first and foremost item that comes to mind. When it comes to filing your taxes, you will find this to be of great assistance.
If you use your automobile for work, you have the legal right to submit a claim for reimbursement of the travel costs associated with your job that is directly tied to the business costs of using your car to perform your duties. You can submit your claim for the car expenses using one of several different methods.
Learn more about these approaches by reading. If you want to make a claim through any of these methods, you have to be the owner of the car, and the record-keeping requirement is different for each method.
Because it is deemed to be private travel, the commute to and from work each day cannot be claimed as a tax deduction.
Even if any of the above apply, you are unable to deduct the expense of typical commutes between your home and place of employment because such travel is considered private:
On your way to work, you perform errands such as picking up the mail on the way there.
You have to make your way back to the office for a parent-teacher conference or a security call.
You put in extra hours at the office, but there is no public transportation accessible to get you home.
Expenses for work-related attire and laundering costs
Do you need to dress formally when you go to work? Or perhaps your employer requires you to wear a uniform that bears the emblem of the company you work for? Maybe you work at a clothing store, in which case you are required to show up for work dressed in garments purchased from that store.
Regardless of the circumstances, you are required to adhere to the dress policy of your employer, and as a result, you may have the expectation that the ATO will treat you in the same manner when it comes to claiming tax deductions for your work apparel.
What kinds of garments are eligible for the claim?
Only clothing that has been specifically designed for your job, such as chef’s pants, can be deducted from your taxes. You are not allowed to deduct the money spent on the purchase or laundering of garments that are not specifically required for your job. These consist of slacks of a dark colour and shirts with white collars.
You are, nevertheless, eligible to make a claim for the clothing and footwear that you wear to shield yourself from disease or damage.
For instance, if you work outside, you can be entitled to compensation for sun protection.
Claim eligibility for uniform-specific clothes depends on whether or not the item bears your company’s emblem or falls within the parameters of your employer’s uniform policy.
Deductions for those who work from home
If you carry out all or part of your work activities from home, then you may be eligible to claim a tax deduction for a portion of the expenses associated with maintaining a home office.
You really ought to have a space in your house dedicated to serving as an office.
If you are using a room that has a dual purpose (for example, the dining room) or a room that is shared with others (for example, the lounge room), you can only claim the expenses for the hours that you had exclusive use of the area. This is true even if you do not need to have a room set aside specifically for your home office claim.
It is essential to maintain records for your home office, especially if your business involves taxes in any way.
If you perform your job duties from the comfort of your own home, you may be eligible for reimbursement for business-related expenses such as the cost of a computer, a phone, or any other essential electronic equipment.
You are also allowed to deduct the costs associated with running any electrical appliances.
As a general rule, you can deduct up to $300 worth of expenses related to home office equipment such as computers, while expenses related to things costing more than $300 can be deducted as a reduction in value. If you use your phone for work-related activities, you may be able to deduct some or all of the cost of your monthly phone bill.
Mobile phone use
If you use your personal phone for work-related reasons, you may be eligible for a deduction provided that you paid for the use of the phone and have records to back up your claims.
If you use your phone for both business and personal reasons, you will need to calculate the proportion of time that can be tied back to your professional activities.
You are not allowed to submit a claim for reimbursement of phone costs after they have already been paid for by your employer.
In order to calculate your deduction, you will need to select a typical period of four weeks that falls within the tax year at some time.
If you have a phone plan that provides you with an itemised bill, you need to calculate the percentage of time you spent on work-related calls during the previous four weeks. After then, you can use that information for the entire year.
It is vital that you calculate the proportion utilising a rational basis. Read our guide on how to deduct mobile phone costs from your taxes for more details.
Payments for membership in professional organisations, magazine subscriptions, and labour unions
You might be a member of an association because it’s required for your job, and if so, the good news is that you can get reimbursement for your membership dues. If you are a member of a labour union, the dues you pay are also tax-deductible.
Your return can take a hit if you invest in magazines or pay for subscriptions to publications that are relevant to your industry. If you are an investor, you are eligible to make a claim for financial publications and research services. Consider the future and prepay the costs for the following year before the June 30th deadline in order to get your deduction.
Donations & Gifts of All Kinds
You are only eligible to receive a tax deduction for your gifts or donations if the organisation to which you gave them is qualified as a deductible gift recipient (DGRs). To be eligible for a tax deduction for a gift, the recipient must satisfy all four of the following requirements:
It is required that the donation be made to a DGRs.
Whatever it is that you are giving away as a present, it must really be a gift.
It can either be money or property, and it also includes financial assets.
Any and all conditions that are pertinent to the gift must be met. It is usually better to check, because different DGRs may have different requirements.
The maximum allowable amount to be claimed is different for each kind of gift. For the money, it needs to be at least two dollars. When it comes to real estate, the guidelines can change based on the kind and price of the asset.
How much should be claimed?
You are eligible to take a tax deduction for monetary donations as long as the total value of the gift is at least $2. When it comes to gifts of property, the regulations vary greatly based on the nature of the property, as well as its value.
You are eligible to claim the deduction on your tax return for the income year that coincides with the year in which the gift was given.
Your receipt, which you will need to provide as evidence to support your deduction, should indicate whether or not you are eligible to make a deduction claim.
If you made a donation over $2 using the internet or the phone, you may be able to deduct that payment provided you have a web receipt or a credit card statement to prove the deduction. If you made your contribution through a third party, such as a bank or a retail establishment, the receipt that they provided you with is also adequate.
If you made a contribution through something called “workplace-giving,” the amount that you gave will be reflected in your payment summary. Learn more about how to properly claim gifts and donations here.
Both interest and investments are included
Expenses that were expended in the process of earning interest, dividends or other types of investment income can be claimed as tax deductions. You are able to include account holding costs for investment reasons within the expenses related to interest income. Be aware, however, that if you have a joint account, you can only collect the portion of the fees that corresponds to your share of the account.
You are able to take a tax deduction for interest paid on money borrowed to purchase shares of stock, which can be applied to both shares and dividends. If you borrowed money and utilised it for both personal and business reasons, you are required to divide it up so that equal amounts go towards each category.
Income protection insurance
You are allowed to deduct the cost of your premiums for any insurance policies that protect you against a reduction in income.
But be careful not to fall into the trap of thinking that you may deduct features such as life insurance, critical care insurance, or trauma insurance; these policies do not qualify for tax deductions.
The use of contributions to your superannuation account to pay for insurance policies is also prohibited.
Expenses related to education
If your studies have a clear bearing on your job, you may be eligible to get reimbursement for any associated costs. The training you receive must result in a formally recognised qualification that satisfies the following requirements:
The training should help you keep or develop the skills and knowledge required in your current employment, and it should either directly result in a rise in your pay or increase the likelihood that it will do so.
You are not allowed to deduct any costs associated with self-education that do not have a connection to your current job that is substantial enough.
You are eligible to get reimbursement for the following costs associated with your continued education:
- include both meals and lodging (if away from home overnight)
- computer consumables
- course or tuition fees
- a loss in value for depreciating items (cost surpasses $300)
- acquisition of apparatus or scientific devices costing less than $300
- equipment repairs
- home office overhead and operating expenses
- internet use (excluding connection fees)
- parking costs (only for work-related claims)
- calls on the phone
- student union fees
- costs associated with student services and perks
- trade, professional, or academic journals
- transportation to and from the educational facility (only for work-related claims)
You are only allowed to deduct the portion of an item that is directly related to self-education, even if that expense serves many purposes. For example, if you pay for a course that is partially for your own education and partly for anything else.
Tools and equipment
If you need certain tools and equipment for work-related reasons, you may be able to deduct some or all of the expenses associated with purchasing such items. In the event that the work is used for both professional and personal reasons, you will need to determine how much of each category you are eligible to claim. The amount of the deduction you are eligible to claim will depend on the cost of the asset:
You are eligible for an immediate deduction for any non-set items that cost less than $300 and do not belong to a set.
If you have items that cost more than $300 each or are part of a set, you may be eligible for a deduction for the value loss of those items.
In the event that it is necessary, you are also able to make a claim for the money spent on repairing and insuring any tools and equipment.
Costs associated with preparing your taxes and getting to and from your accountant
If you were astute enough to hire a tax professional to help you finish your return from the previous year, you are eligible to receive a refund for that expense this year. You are also permitted to submit a claim for reimbursement of any costs incurred by you in travelling to and from these consultations.
Can you deduct the cost of a home desk that you purchased prior to the implementation of COVID-19?
“Consequently, if you wish to claim deductions for an item that costs more than $300 and you’re using, for example, the actual expenses approach, then it relies on the effective life of the asset whether or not you may do so. Therefore, items like laptops have a useful life of two years, and consequently, they are often depreciated over the course of two years. Since desks are now significantly longer, it is possible that you may be able to reclaim some of the length of a desk that you purchased more than a couple of years ago. However, you would be required to have the receipt, and beginning the minute it is purchased, the item begins to lose value, regardless of whether or not it is being used for professional reasons. You will need to calculate how much its value has decreased between the time you got it and the present, as well as how much its value has decreased this year and how much you have utilised it for professional purposes.”
What if you decided to buy used furniture for your home office instead?
“That is a really insightful question. You still need to be able to produce sufficient evidence to demonstrate both a) that you spent the money and b) what you purchased with the money. Therefore, if you have those combinations of things between your Gumtree and your bank statement, you are probably getting close to having enough information to make a decision.”
What if you buy deluxe stationery, like kikki.K ?
“In the event of an audit, we make every effort to adopt a pragmatic stance, but in the end, we revert to those time-tested principles.
Therefore, you will be allowed to claim your stationery if you are utilising these things one hundred per cent for work purposes – and if that is the only reason that you have them – you have spent the money on them, and you have a record to prove that you did so.
But if you bought a fancy planner from a store like the one you described and you use it partly for work but you also use it a fair bit for private – or even just a little bit for private – then you need to take into account that private use. This is true even if you only use it a little bit for private.
Can you claim a $700 pen from Mont Blanc?
I believe that things will be challenging for you. Since that is such a significant amount, anything of such value would be considered a depreciable asset anyway. However, I believe that it would be difficult for you to justify the purchase of a pen that costs $700 in order to do your work.
It’s not that much different from a pen that costs two dollars if you think about it. I have no doubt that it is far prettier and less choppy.
Look, we make an effort to deal with individuals in a fair and reasonable manner, but at the same time, we make an effort to deal with people in a quite generous manner by providing a simple way to compute based on the 80 cents per hour technique.
However, if individuals have legitimately larger expenses and they desire to use one of the other alternatives, that is completely acceptable. On the other hand, we can’t allow other individuals to manipulate us in any way.
You should be aware that even a little amount of fraudulent activity perpetrated by a large number of individuals each year can amount to billions of dollars.
We want people to claim what is really theirs, but we also can’t turn a blind eye to folks who are overclaiming what they are eligible for. Therefore, individuals need to have a reasonable perspective regarding what it is that they will assert.
Is it possible to deduct the expense of a uniform even if you are unable to wear it because of COVID-19?
If you were required to purchase a uniform, but it turned out that you didn’t get to use it very often – or at all – but it was something that your employer required you to purchase, and you’ve got your receipt and everything like that, then you can still claim the cost of the uniform itself.
This applies even if it was something that your employer required you to purchase.
However, people also make claims for the expense of laundering such uniforms, and a significant number of people make the same claims year after year for the same amounts.
And if what you’re claiming for is the same as it is every year and you have a claim for working from home, we may ask you certain questions, such as whether or not you wore your uniform while you were working from home. And was it mandatory for you to do so?
It’s not very likely at all. This year, there have been a lot of changes in people’s living situations.
For other folks, they have continued to work on the front line and wear uniforms, and their claim may very well be the same as before. On the other hand, I wouldn’t expect to see a significant number of work-from-home claims coming from those individuals either.
You now have a good introduction to the fundamentals of the tax deductions that apply to small businesses.
Although the majority of small business tax deductions are more involved than this quick overview describes — after all, we are discussing the tax law — you now have this information.
There are more deductions possible in addition to those that are described here; nevertheless, the ones that are presented here are among the most significant ones.
In addition to being deductible, expenses such as those incurred for the purchase of office supplies and the processing of credit cards, the preparation of tax returns, and the upkeep and repair of business property and equipment are also deductible.
On the other hand, some business expenses can be depreciated or amortised, which means that you can deduct a portion of the total cost each year for a number of years.
This applies to expenses such as office equipment.
Keep in mind that whenever you are unsure as to whether a cost is a valid company expense, you should always ask yourself, “Is this a regular and required expense in the area of work that I am in?” If you are selected for an audit by the ATO, they will ask you this very question as part of their review of your deductions.
Do not continue with the deduction if the response is not yes. Also, if you have any doubts, you should consult a certified public accountant for assistance with the filing of the tax return for your company.