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Tax Deduction For Operating Expenses

May 6, 2024

Tax deductions for other operating expenses are essential for small businesses looking to maximise their savings and manage their finances efficiently. As a small business owner, it’s important to be aware of all the deductions you’re entitled to, as this can make a significant difference to your bottom line come the end of the financial year (EOFY).

It’s important for you to keep accurate and complete records of your operating expenses to claim these deductions.

This article will provide a general summary of various operating expenses that you can claim. We’ll also explain how QuickBooks can help manage these deductions effectively.

Understanding operating expenses

Operating expenses are the costs associated with the everyday running of a business.

These expenses, sometimes called working or revenue expenses, are separate from capital expenses, which involve investments in long-term assets.

You can generally claim a tax deduction for most operating expenses incurred during the same income year. However, successful claims are reliant upon the provision of receipts or documentation. That’s why it’s vital to maintain comprehensive records of these expenses as they occur. Accounting software, like QuickBooks, can help business owners like you keep track of expenses as they occur.

One of the reasons record keeping is vital is that you can only claim the business portion of these expenses if they relate to both business and private use. Accurate recordkeeping can help distinguish between private and business use.

What car expenses can you claim?

Yes, there are several aspects of your vehicle use that you can claim through the Australian Taxation Office (ATO):

Fuel and oil costs
Repairs and servicing related costs
Interest on a loan for the vehicle
Lease payments
Insurance premiums
Registration fee
Motor Vehicle Depreciation (decline in value)

What are ‘other operating expenses’?

Other operating expenses refer to a wide range of operating costs that a business might incur. The ATO has a list of deductions in addition to the more commonly recognised expenses such as salaries, rent, or utilities.

These additional expenses, though they may not be as obvious, are also eligible for you as a business owner looking to make the most of what’s available.

For example, items that are tax deductible can include sponsorship expenses, advertising expenses and legal fees.

Common business operating expenses

In the course of daily operations, businesses encounter numerous operating expenses. These can include:

Trading stock purchases and delivery charges
Advertising, sponsorship, and public relations
Legal fees, such as those related to defending future earnings, borrowing money, or obtaining tax advice
Insurance premiums for various coverages, such as accident, disability, or workers' compensation
Interest on borrowed money for income-producing purposes
Lease expenses and stationery costs
Internet service fees, data plans, and cloud storage

You should also be aware of expenses related to employing people, such as salary, wages, and superannuation.

Beyond these, there are other expenses related to employing people such as:

Perks given to employees, along with the related fringe benefits taxes
Safety gear needed for employees to perform their job tasks
Compensation or reimbursements for workers using mobile phones or other mobile devices for work-related purposes
Costs associated with relocating employees
Financial losses resulting from dishonest acts by employees or representatives, such as fraud, larceny, or misappropriation of funds

Operating expenses for business premises include electricity, water, landline phone calls, internet service fees, rent, and land tax.

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Deductions similar to employee expenses

As a business owner, you can claim deductions for some expenses similar to those claimed by employees, including:

Union dues and subscription fees to trade, business, or professional associations
Clothing expenses, such as uniforms or protective gear
Education and professional qualification expenses
Subscription costs for business or professional journals and information services
Protective items, such as sunglasses, sunhats, and sunscreen, for outdoor work environments

How QuickBooks Can Help

QuickBooks Tax Software is a powerful tool that can help you manage your operating expenses and claim tax deductions.

The software offers features to categorise, track, and report various operating expenses, making it easy to stay organised and compliant with tax regulations.

With QuickBooks, you can:

Monitor and categorise expenses efficiently
Generate comprehensive financial reports for tax filing
Streamline tax preparation with accurate records of deductions

You can also lodge business activity statements (BAS) directly from QuickBooks. Simply follow the preparation steps and e-lodge forms through the easily navigable software.

Accounting software like QuickBooks can be a valuable resource for managing your business's financial health and can help you take advantage of available tax deductions.

Try the service with a free 30-day trial today.

While every care has been taken to ensure the accuracy of the information presented as at 02 May 2023, Intuit is not providing you with professional advice and we recommend you obtain your own professional advice. Intuit is not liable for your use of the information presented.

FAQs

How can I determine if an expense is eligible for a tax deduction as an operating expense?

An expense is generally eligible for a tax deduction as an operating expense if it's directly related to the everyday operations of your business. That means that it leads or contributes to you generating assessable income. A useful guide to determining eligibility is to ask yourself whether the expense is necessary and reasonable for your business operations and if it's solely used for business purposes (though there are exceptions to this rule.) Talking to a tax advisor is always advisable to help you understand your deduction entitlements.

Are there any restrictions or limitations on claiming tax deductions for other operating expenses?

Some operating expenses may have limitations on the amount that you can claim, or they might only be deductible under certain specified circumstances. For example, you can only claim the business portion of expenses for something that may include both business and personal use. Your mobile phone is the most common example of this. Always consult the ATO guidelines or consult a tax professional to ensure you claim deductions correctly.

How can I keep accurate records and documentation to support my claims for tax deductions on other operating expenses?

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Tax Deduction For Operating Expenses

Understanding operating expenses

What car expenses can you claim?

What are ‘other operating expenses’?

Common business operating expenses

Grow Your Business with QuickBooks

Deductions similar to employee expenses

How QuickBooks Can Help

FAQs

Related Articles

Looking for something else?

Get QuickBooks

Help Me Choose

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