EOFY is almost upon us, and unless you have a great accounting software package, that could mean digging through a year of receipts to work out what you can claim. Many freelancers and sole traders choose to keep overheads low by operating from a home office or a shared space, but it’s estimated that almost half of them (40 per cent) are unaware of what sorts of expenses can be claimed on tax. And next year it will be even more important for freelancers to be organised, with the Government cracking down on the cash economy. If you operate within the “gig economy” and undertake cash transactions, it will vital to ensure you comply at tax time to avoid a time consuming and unwelcome audit.
Every small business is different, so I recommend finding a good accountant to help with your particular circumstances, however, there are some home office deductions freelancers and sole traders can claim that could result in a better tax outcome than you thought.
Home office expenses
If you work from home, you can claim a proportion of your household running expenses, which includes electricity, phone, internet, gas and water. For expenses such as utilities, you calculate the amount based on the footprint of your office in proportion to the rest of your house. If your office takes up a quarter of your home, then you could claim 25 per cent. Sadly, even though you might use the kitchen and bathroom in the course of your day, these rooms won’t count in your calculations.
For phone and internet, apportion the amount used for business compared to personal use.
You can also claim depreciation (decline in value) on office equipment and fittings like your, desk, chair, computer, carpets, curtains. If you bought a new computer or new office furniture this year, you may be entitled to an immediate refund (no depreciation) through the Federal Government’s $20,000 instant asset write-off.
And you may also be able to claim back a portion of your rent or mortgage, insurance or rates. Again, these deductions would be based on the footprint of your office proportional to your home size.
It is worth discussing mortgage deductions with your accountant before including it in your tax return, as there may be capital gain or loss implications, which might deter home owners from claiming.
Other claimable expenses
Expenses you may be able to claim as a freelancer running your own business include the costs of :
- advertising and sponsorship
- bad debts
- interest on money borrowed
- stationery
- website provision and maintenance
- software and computer programs
- parking fees (not your fines, sadly!)
- PR
- some legal fees
- tenders (even if it was was unsuccessful)
- subscription costs to business related media or professional journals, and
- education, technical and other expenses related to your professional development.
A great, and somewhat quirky, deduction you may be eligible for (but please speak to a financial professional first) is a “guard dog.”
If you need to visit clients in your private car, you can claim mileage, tolls and a proportion of your car insurance. You are not required to keep receipts if you travel less than 5000km per year, but you may be required to provide a basis for the journey, which may include business diary excerpts. If you travel more than that, then a logbook is required for three months, and you should have all your receipts for fuel, registration, insurance, repairs and even car washing.
There are also tax advantages to contributing to superannuation, which is not compulsory for freelancers and sole traders. In some instances, the Federal Government may even match or contribute to your fund.
Every home office is different, but knowing there is a raft of expenses you can claim back makes it almost exciting to get stuck in and see just how much you can reduce your taxable income by.
I can’t stress enough how important it is to speak with a tax professional (tax deductible) to ensure you are taking advantage of the most deductions for your circumstances, and also to keep records of all your expenses on reliable accounting software (also tax deductible), making it easier to prepare your lodgement faster.
Oliver Garside, Co-founder and COO, Rounded
