Business Basics: What costs can you claim?
Whether you’re set up as a sole proprietor or a company in South Africa, every cost you incur that directly relates to operating your business could be tax-deductible.
But how do tax-deductible business expenses work and what types of expenses should you be tracking? Here’s what you need to know.
WHAT ARE SARS TAX DEDUCTABLE EXPENSES?
According to SARS, tax-deductible business expenses are “expenses incurred in the operation of a business”. In other words, any purchase you make for the purpose of running your business counts as a business expense.
OK, SO WHICH EXPENSES CAN I CLAIM?
Here’s a list of tax-deductible business expenses in South Africa that you might be able to claim to reduce your bill next tax season:
1. Business Running Costs
This includes all financial outgoings that are incurred as part of running your business, such as:
Material and equipment costs
Employee costs and administration costs
Business/office rental costs
Travel and transport, including business vehicle costs
Uniforms (if needed)
Wholesale purchase costs for goods resold
Financial charges (such as bank fees), utilities
Marketing, advertising and promotion costs
If you have a home office, you can also claim a percentage of your home expenses for work use. This includes:
Rent or mortgage
Rates and taxes
Repair costs to the premises
The percentage you can claim depends on how often you work from home and how much of the space is used for business purposes. It’s a good idea to check with a tax advisor on how much you can deduct.
THE ONES THAT GET FORGOTTEN...
This is the more interesting list! These are the items often forgotten by small businesses:
Capital expenses are purchases of physical goods or services intended to be used long-term by your business. Example machinery, vehicles, computers.
If you invest in education for yourself or your staff that directly relates to operating your business, you can deduct the cost as a business expense.
All expenses incurred while entertaining clients are tax deductible. This includes drinks, meals, live entertainment and venue hire. However, you must be able to prove to SARS that the expenses were incurred in pursuit of business.
Business Start-up expenses
These are expenses relating to your business that were incurred before your first year of trade.
Net operating losses
Any losses you have incurred in the same business in previous years can be carried forward as a tax deduction.
NOTE FOR SOLE TRADERS
Whether you are a sole proprietor or a company, you are entitled to claim legitimate business expenses as tax deductions.
However, if you run your business as a sole proprietor – that is, your business is not a separate legal entity from you – the income you make from trading must be reported as part of your personal income tax return. There is also no “minimum threshold” to meet before you are required to file taxes.
With this in mind, it’s important to keep comprehensive, separate lists of business expenses and personal expenses.
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