There are plenty of upsides that come with running your own business. And when it comes to taxes, being able to reduce your taxable income and, as a result, your tax bill, by deducting legitimate business expenses through SARS registration, is one of the biggest perks. Our list of business tax expenses below will help ensure you capture all possible deductions when submitting tax in South Africa.

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?

In this article, you will learn:

• What is a tax deduction?
• What are SARS tax-deductible business expenses?
• Tax-deductible expenses in South Africa
• Sole proprietor vs. company: Can both claim business expenses?
• Simplifying business expenses with turnover tax
• Stay on top of your business expenses with QuickBooks Expense Tracker

What is a tax deduction? 

A tax deduction is a reduction in the amount of income that is subject to taxation, which can lower the amount of taxes owed to the government. In other words, a tax deduction is an allowable expense that can be subtracted from a taxpayer's income, resulting in a lower taxable income and a lower tax liability.

SARS tax deductions can help individuals and businesses reduce their tax burden and keep more of their earnings.

Some common examples of tax deductions include:

• mortgage interest,
• state and local taxes,
• medical expenses, and
• business expenses like rent, salaries, and utilities.

What are SARS tax-deductible business expenses?

Before we get into specific types of business tax-deductible expenses in South Africa, let’s look at the basic definition of a tax-deductible business expense.

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, which can also be referred to as operating expenses.

Tax-deductible business expenses reduce the amount you pay taxes on. For example, if you made R600,000 during the tax year and made business purchases totalling R50,000, your business taxable income would be R550,000 instead of R600,000.

Tax-deductible business expenses in South Africa

There are many types of tax-deductible business expenses and these apply to most types of businesses. Keep these deductions in mind when you prepare to file your own business tax.

1. Day-to-day business expenses

Day to day expenses include 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
• Office supplies
• Phone costs
• Travel and transport, including business vehicle costs
• Uniforms (if needed)
• Wholesale purchase costs for goods resold
• Financial charges (such as bank fees), utilities
• Legal fees
• Insurance fees
• Marketing, advertising and promotion costs

If you have a home office, you can also claim a percentage of your home expenses for work use, including:

• Rent or mortgage
• Insurance
• Rates and taxes
• Repair costs to the premises
• Utilities
• Cleaning

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.

2. Capital expenses

Capital expenses are purchases of major physical goods or services intended to be used long-term by your business, including:

• Equipment and machinery
• Business vehicles
• Renovation costs
• Hardware, such as computers

3. Education expenses

If you invest in education, whether for yourself or your staff, that directly relates to operating your business, you can deduct the cost as a business expense.

4. Entertainment expenses

All expenses incurred while entertaining clients, including drinks, meals, live entertainment, and venue hire, are tax deductible. However, in order to deduct these expenses, you must be able to prove to SARS that they were incurred in pursuit of business.

5. Business Start-up expenses

Any expenses relating to your business that were incurred before your first year of trade can be claimed as a tax-deductible expense. For example, if you purchased equipment for the purpose of running your business three months before starting to trade, you could claim it as SARS-deductible.

6. Net operating losses

Any losses you have incurred in the same business in previous years can be carried forward as a tax deduction.

Sole proprietor vs company: Can both claim business expenses?

In South Africa, you're entitled to claim legitimate business expenses as tax deductions, regardless of whether you’re registered as a sole proprietor or a company.

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.

As a sole proprietor, you may have both business expenses and personal expenses that you can claim as deductions on your personal income tax return. With this in mind, it’s important to keep comprehensive, separate lists of your business and personal expenses.

Simplifying business expenses with turnover tax

If you are registered as a company or registered as a sole proprietor in South Africa, you can choose to pay either standard small business income tax rates or elect to pay turnover tax.

Turnover tax is a simplified tax rate aimed at reducing administration for small businesses with an annual turnover of less than R1 000 000.

To make record keeping easier, the turnover tax system automatically estimates a company’s business expenses when calculating taxable income. This means businesses registered for turnover tax don’t need to track and report their tax-deductible expenses.

Additionally, small business owners will usually pay a lower tax rate under the turnover tax system than the standard tax system, and may not even have to pay tax at all depending on their annual income.

The minimum tax threshold for small businesses and sole proprietors for the 2024-2025 tax season is as follows:

Standard small business minimum amount of taxable income: R83,100

Turnover tax minimum amount of taxable income: R335,000

For many small business owners, there are advantages to opting in for turnover tax over standard small business tax.

However, expenses are purely an estimation under the tax turnover system, so if you have very high tax-deductible expenses that would reduce your taxable income significantly, it may be in your best interest to claim them under the standard tax system instead.

Stay on top of your business expenses with QuickBooks Expense Tracker

Regardless of your business structure, tracking your expenses regularly is key to managing your finances effectively, maintaining positive cash flow and ensuring accurate record-keeping.

QuickBooks Online Accounting Software features an Expense Tracker - making it easy for small businesses to keep track of expenses and income throughout the year, from anywhere on any device. So, when tax time rolls around, you’ll have all the information you need to file your business tax return quickly and correctly.

Get prepared for tax time early and try QuickBooks free for 30 days (no credit card required)!

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