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Ultimate Guide to Tax Deductions for the Self Employed

Mark Chapman

With tax time underway and the ATO signalling a crackdown on incorrectly claimed work-related deductions, it’s essential that you claim only those deductions you’re entitled to and no more. Equally, it’s also essential that you don’t miss out on deductions that you could have claimed. With self-employed people able to claim a wider range of possible deductions than those in employment, here’s our guide to some of the additional deductions you might be able to claim if you are self-employed:

Capital equipment

Because you’re self-employed, you’re regarded as running a small business for tax purposes. That gives you access to one of the most valuable tax concessions around at present, the instant asset write-off. This enables you to write off the entire cost of purchasing any capital equipment for your business, provided the cost of each item is less than $20,000. That could include assets like these, depending on the nature of your business:

  • Technology items like computers, laptops, tablets, phones and printers
  • Plant and equipment, such as tools and machinery
  • Office equipment such as seating, desks and storage
  • Motor vehicles such as utes (which you’ll probably need to buy second hand in order not to breach the $20,000 limit)

To qualify, your turnover must be less than $10 million (a level most self-employed people can only dream of!) and you must make your purchases before 30 June 2018.

Super Contributions

If you’re self-employed, nobody is paying super contributions on your behalf. Given that many self-employed people are too busy making ends meet to consider making their own super contributions, that can mean that your retirement savings suffer in the long term.

Fortunately, self-employed people get help from the taxman to save for their retirement. You can claim a personal income tax deduction for any contributions which you make to your super up to the concessional contributions limit ($25,000 from 1 July 2017).

A 15% contributions tax is deducted from any superannuation contribution that has been claimed as a tax deduction.

Example:

Todd is a fulltime dental assistant. During 2017-18, he earned $50,000 before tax. Todd has no other income. Todd makes a personal contribution to an eligible superfund and notifies them that he intends to claim a deduction. Todd’s superfund acknowledges that Todd will claim a $15,000 deduction and taxes the contribution at 15%. Todd is eligible to claim a deduction for $15,000 and does this in his 2018 Income tax return.

Your super fund will need your TFN in order to accept personal contributions from you.

Home Office costs

Anybody who works from home – whether employed or self-employed – can claim the appropriate proportion of costs relating to utility bills, depreciation of capital goods, cleaning costs, etc.

If you are self-employed and use your home as your base, there are additional deductions you can claim. As well as the costs noted above, you can also claim a proportion of the ownership costs of your home. This can include mortgage interest, rent and land rates. Be careful to claim only for the element that relates to the part of the house used to run your business and only for the time you actually work in your business. This is an area the ATO checks carefully, so be sure that your claim is not excessive.

 

Advertising and marketing costs

Money you spend promoting your business is tax deductible. This could include the cost of advertising your services online (including the cost of developing a website), placing ads in “traditional” media like magazines and newspapers, developing and printing flyers, exhibiting at trade shows, putting up signage and developing promotional items to give to customers, prospects and suppliers.

Business Insurance

Insurance to protect your business is generally tax deductible.

This can include insuring your business premises (including a proportion of home insurance, if that’s where your business is based), professional indemnity insurance, public liability insurance, insurance against loss of income and insurance on motor vehicles used in the business.

 

And finally….

As noted right at the start, it’s essential that you get your claims right in order to stay out of trouble with the ATO and to get the best possible tax outcome. The easiest way to do that is to take professional advice from a tax agent like H&R Block.