Are you missing out on tax deductions that could be saving you money?
They say that only two things are certain in life: death and taxes. Paying tax is inevitable, but there are things you can do to reduce the percentage of your income that the taxman takes. As a small business owner, you might be paying too much tax – so we’ve put together a list of some of the most overlooked deductions to help you reduce your bill.
Of course, to claim any tax deductions, you need to be on top of your bookkeeping. Get into the habit of updating your records and filing all your receipts and invoices in a well-organised system.
Maximise tax deductions by keeping these key points in mind:
1. Startup Expenses
Money is usually tight during the startup phase, and every penny counts, but many small business owners overlook startup costs. Don’t assume that it’s too late to claim, either; in the UK, for example, limited companies can claim relevant startup expenses for up to seven years before the business officially begins operations. Limited company expenses and tax reliefs can be confusing for new business owners – namely, which costs are legitimately tax deductible. Make sure you know which costs you can claim.
2. Home Office Expenses
If a room in your home functions as your primary place of business, then you may be able to claim a home office deduction. Expenses such as gas, internet, and electricity will usually be deductible based on the percentage of your home used for work and for how long. Therefore, it’s important to keep a record of how many hours you work each month to calculate this deduction.
You will also be able to claim expenses such as office furniture, although again, you will have to calculate the usage portions. If you buy an office chair for £100 and use it exclusively for work, then you can claim the full amount. However, if you use it for personal reasons 30% of the time, then you will only be able to deduct £70 from your taxable income.
Business owners often overlook capital and net operating losses as tax deductions. It’s possible to carry these losses over into future tax years to reduce taxable income. With so many small businesses suffering due to the Covid-19 pandemic, this is definitely a deduction to make note of. Carryovers can be used to reduce either the business’ or the owner’s income. It’s best to speak to your accountant about how your business can best benefit from this type of tax deduction.
4. Losses on Bad Debts
If your business loses money due to a customer who won’t pay, an employee who quit after receiving advance wages, or loans to clients that your business is now unable to collect, then you may be able to claim this amount as a tax deduction. You will have to prove that you have taken reasonable steps to collect this amount but have been unable to do so. Of course, this situation is less than ideal, but it may help to soften the impact of a bad debt.
5. Education and Training
It’s a good idea to invest in your employees, and you should be able to deduct the cost of doing so. Many business owners overlook the fact that educating and training their employees is a deductible tax expense, so keep a careful record of your spending in this area to receive a smaller tax bill.
Don’t Overlook These Tax Deductions
We all would like a smaller tax bill, so be aware of these often overlooked deductions so you don’t end up paying more than necessary. It’s important to track all your expenses so that you don’t miss out on any potential tax deductions. Make sure you confirm what expenses qualify for tax deductions so that you don’t end up making a costly mistake.
Atek can help with tax solutions
At Atek, our mission is clear: We exist to help businesses get control of their finances, improve efficiency, and grow. If you have questions about tax deductions for your business or any other accounting concerns, we would be happy to help and invite you to contact us.