If you’re a contractor, you’re probably well aware of many of the costs involved with keeping your business going. Renting work spaces, buying supplies, telephone, internet, electricity, travel expenditures … the list goes on.
As we draw nearer to tax time, however, these niggly costs can save you money. If you have held on to the relevant bills and receipts throughout the year, you can offset your business expenses against your income and effectively reduce your tax bill.
Whether you’re new to the game or an old player, you may not know all of the costs you can claim. From rent and lunches to travel and magazine subscriptions, almost anything that relates to work can be claimed. While we recommend you have someone to look after your contractor payroll – in particular, to keep those receipts in line – it’s still good to keep informed about exactly what you can claim. Want to know more? Read on.
- Office space
You can claim any type of office space as a tax deduction. If you rent an office, your rent money can be deducted. This also applies when you’re paying for a coworking space. Even home offices can be claimed as tax deductions if you have a specific room used for your business.
You can claim:
- rent or mortgage interest
- power, telephone, and internet bills
- repairs and maintenance to the home office area.
Part of your contractor expense claims can be the depreciation on key items such as computers, printers, office furniture, and fittings or shelving used for work purposes in your home.
If you don’t have a separate designated space for your home office, you can still claim it by calculating the percentage of the home space that you use for work activities.
Remember to keep invoices and receipts for all the expenses you can claim as a contractor.
- Materials, stationery, and supplies
All equipment used on your job is tax deductible. For expenses over $500 the rules are a little different. These assets – provided they are kept for over 12 months need to be added to a depreciation schedule. This could cover anything from your computer(s) to that super sweet ergonomic swivel chair you’ve been dreaming of.
If you earn over $60,000 p/a you are legally required to register for GST, which is also claimable.
If you purchase stationery, supplies, or other items under $500 that you need for the day-to-day running of your business, you can deduct the entire cost from your taxes as part of your contractor expense claims.
For more information on assets over $500 and GST, we strongly advise you talk to your contractor payroll provider or tax advisor.
It’s also important to keep the receipts of these expenses for at least seven years, just in case you are audited.
- Travel expenses
If you need to travel outside of your working area to meet a client, deliver a product, perform a gig, or attend classes related to your trade, you can deduct travel costs from your taxes. If you have a separate work vehicle, you can deduct 100% of the costs for the car. If you use your personal vehicle for work, you will need to keep track of the mileage used for business trips and external meetings and deduct according to the current standard mileage rates.
Tolls and parking fees when travelling outside of your usual working area are deductible and also contractor expense claims. You can also deduct the money spent on meals, accommodation, flights, car hire, and other related transport expenses from the trip.
An entertainment expense is business related if you spent the money to help your business earn income. Examples could be entertaining existing or potential clients, or holding an event for your employees to improve engagement (a party or team building activity).
Some entertainment is 100% deductible and some is only 50% deductible. This will depend on whether there is a personal or private element. Entertainment away from work or outside of usual work hours is generally considered to have a personal element and is only 50% deductible. This includes scenarios such as when you invite clients to lunch or to grab coffee outside your working hours or space.
Examples of 100% deductible entertainment include:
- food and drink provided at your place of business
- light refreshments, food, and drinks at conferences and/or events held by your business
- gifts and/or customer incentives.
Most other entertainment expenses will only be 50% deductible.
- Education and memberships
Business memberships (not including your golf membership, even if you prefer to meet over a game), journals, books, and online courses can be fully deducted from your taxes. You can also deduct the cost of continuing your education if it’s required by law or if you take any classes that improve the skills needed to do your work as an independent contractor.
Also, subscriptions to any kind of dedicated magazines and materials are taken into account. Any related expenses, such as course notebooks or textbooks, can also be deducted. All deductions must enhance your business skills in some way, and have a connection to the work you do.
- Extra expenses
Examples of other extra expenses you can claim include:
- membership fees for associations and boards related to your business
- sales tax from selling your product, and most other taxes (check with your contractor payroll)
- any sort of loan payment for your business or for professional qualified help to manage your business (contractor payroll services, tax agent, lawyer, etc. up to $10,000 a year)
- any kind of special protective clothing or uniform needed to perform your job.
If you’ve kept your ducks in a row, or at least your receipts in a box, you should be able to save yourself from paying a fair bit of tax. You can complete your GST and income tax returns yourself, but getting professional help will more often than not save you money. Experienced tax advisors know everything you can claim for, and how to do so legally and comprehensively.
Ideally, it’s best to get a contractor payroll service to manage your income throughout the year. This will make things quicker and easier at the end of the financial year. The Detail can take care of all of your contractor payroll details, leaving you free to dedicate yourself to growing your business.
If you want to know how we can help you with your contractor payroll, contact us here.
Check out our Guide to Contracting for more information here.