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Tax Claim Tips For Consultants

Consulting covers a broad category of jobs in a variety of industries, which can make it confusing when you’re trying to determine what taxes to pay. When it comes time to file your taxes, it helps to know what your allowable expenses are so that you can deduct them from your overall bill. Consultants in all fields should be aware of these deductions.

Check out these tips to find out how you can reduce your tax burden this end of the financial year (EOFY).

Understand the small business tax requirements

Firstly, you need to know whether you operate as an employee or a contractor. Each one is different regarding tax, so you need to know which category you fall into. 

If you are self-employed or have a small business, ensure you understand all the taxes you need to pay. You will need an Australian Business Number (ABN) to file your taxes and trade with other businesses. If your income is over $75,000 per year, you also need to pay goods and services tax (GST) by lodging business activity statements (BAS).

Then, there are various expenses that you can deduct from your overall tax bill.

Business expenses

As a consultant you can deduct several work-related expenses, no matter what industry you work in. Let’s run through some potential consultant tax deductions to see where you could save.

Car and travel expenses

Generally, the Australian Taxation Office (ATO) lets workers deduct certain work-related travel expenses from their taxes. You can only claim the cost of using a car when travelling between two workplaces on the same day, whether that’s to an alternate workplace or to another job. 

If you carry bulky tools or equipment between your place of work and your home you may be able to claim the journey. To do this you have to show that the bulky tools are essential for your work duties, can’t be stored securely at your workplace and can only be conveniently transported by car.

If you work from home you may qualify as a home-based business. If you qualify you may be able to claim work trips from your home. This could include:

  • Visiting clients
  • Meeting suppliers
  • Going to the bank
  • Meeting your tax agent

For example, let’s say that Jay is a recruitment consultant who works from home, but occasionally travels to meet clients. He consults for multiple clients and is working with two businesses on the same day. He drives from his house to his first client’s office building – this journey is a deductible expense. Then, in the afternoon, he drives from the first client’s office to the second client’s workplace on the other side of the CBD. He logs both journeys in his logbook, including the time and distance travelled. 

If Jay worked at an office that was his regular place of work. The journey from his home to his workplace or vice versa is not claimable. The journey from his workplace to either client is claimable. 

You can calculate the costs using the logbook method or the cents per kilometre method. The following types of vehicles require the actual cost method to be used:

  • A motorcycle
  • A vehicle able to carry more than one tonne
  • A vehicle that can transport more than 9 passengers

Clothing and laundry expenses

The ATO is strict about clothing allowances. You cannot claim a deduction on any ‘conventional clothing.’ If you work as a freelance consultant and want to be presentable and professional, you might wear a suit. However, the cost of the suit is not deductible because it’s classified as conventional clothing

You can only claim expenses on clothing that is:

  • A compulsory uniform required by your workplace and enforced by policy
  • Unique to your workplace, with a logo
  • Registered with Ausindustry

If your uniform is deductible, then you can claim on the expense of buying or hiring, mending, and cleaning it.

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Self-education and conference expenses

Many consultants attend industry-related seminars and conferences. These are deductible from your tax bill if they will further your skills in your specific field. If there is a portion of the conference that isn’t related to work then you would not be able to make a claim for that part of the conference.

As a consultant, you may want to improve or maintain your skills, the cost for a course to do so can be claimed. However, there are several caveats. You cannot claim for a course that is related to your field in only a general way or if it will help you get a new job. You also cannot claim a deduction if your employer reimburses these expenses.

Working from home expenses

If you work from home, there are lots of ways you can deduct from your tax bill. This includes buying office equipment and supplies, which are deductible in full for items or a set of items under $300. 

You can also deduct bills and utilities, including wifi costs, phone costs, heating and cooling, and more. However, since you will also use these things outside of work, you can only deduct the portion of expenses used for your professional life.

You can use the fixed rate method or actual cost method to work out your expenses. The fixed-rate method means that you keep track of how many hours you work from home, then allow 67 cents per hour for deductions (as of writing in April 2023 and this rate applies for expenses made after 1 July 2022). For the actual cost method, you need to do some calculations.

Let’s say Jay works from home occasionally. His logbook shows that he worked a total of 100 hours in 2022/23. When working from home, he uses his home office, and he always has the air conditioner on in that room; based on his bills, he knows that it costs 1.09 kw and 30 cents per hour to run the air conditioner. He calculates it as follows:

1.09 kw per hour x 30 cents per hour = 32.7 cents per kw hour

100 hours x 32.7 cents = $33 (rounded up to the nearest whole dollar)

You must be able to show how you worked out the amount you deduct, so keep this in mind.

Other expenses

There are several additional expenses that consultants can deduct, including:

  • Premium subscriptions for industry-related publications or software, such as a LinkedIn subscription for a recruitment consultant
  • Union and professional association fees
  • Insurance for any equipment you use for work, such as a laptop

How QuickBooks can help

If you want to do your taxes with ease, you can use QuickBooks accounting software. Not only can it help you send and track invoices, but it also helps you stay on top of your expenditures. 

Consultants can have a lot of jobs and tasks to juggle, so the last thing you want to do is spend time filing and storing receipts. You can capture receipts on the go using the QuickBooks mobile app, and even auto-track your travel expenses.

Get QuickBooks with a 30-day free trial to find out how it can help you through the tax season.

While every care has been taken to ensure the accuracy of the information presented as at 12 April 2024, 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.

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