Working for yourself? Stay on top of your expenses with these tips covering the basics, as well as what you can and can’t claim.

As a small business owner, your business will have some essential running costs, such as office supplies, advertising costs, and even mileage on your car.

Once year-end comes around, you can write off some of what you spent against the tax you owe, as long as they’re allowable expenses.

It all sounds straightforward enough: you track what you spend, what you earn, and you input it in when tax time rolls around. But you might find questions popping up along the way. These might be simple questions, such as 'I’m self-employed, what can I claim?', or more complex questions, like 'How much of my fuel costs can I claim?'

In this post, we break down all you need to know about claiming expenses when self-employed.

If you’re looking for our list of expense management for small businesses, try QuickBooks Online Accounting Software

What are tax-deductible business expenses?

Tax-deductible business expenses are any expenses you spend on the operation of your business. 

Running a business certainly doesn’t come cheap, especially when you’re the boss. You need to pay for all the large expenses, such as rent for office space and your company car. On top of that, you have to cover the smaller expenses as well, like a new set of pens or shouting your client a coffee.

When it comes time to file your taxes with the South African Revenue Service (SARS), some of these expenses can be deducted from your overall business income. For example, let’s say you made R600,000 during the tax year and made business purchases worth a total of R50,000. In this case, your taxable income would be R550,000 instead of R600,000, reducing the amount of tax you owe for that year.

What expenses can I claim from SARS?

According to SARS, deductible business expenses are 'expenses incurred in the operation of a business'. In other words, any purchases you make for the purposes of running your business count as self-employed expenses.

Some of the most common allowable business expenses for self-employed include:

1. Day-to-day business expenses

This includes all financial outgoings that are incurred as part of running your business, such as:

• Rent costs for your business or office
• Office equipment costs, including supplies, furniture or computer software
• Costs associated with your business premises, such as heating and lighting
• Staff costs, including salaries and any admin costs
• Phone and internet bills
• Travel and transport expenses, like petrol for your business vehicle or flights and accommodation for a work trip
• Any clothing needed to run your business, such as work uniforms
• Wholesale purchase costs for goods resold (i.e. stock)
• Financial costs, including accounting, legal and insurance fees
• Marketing, advertising and promotion costs, including the cost to run your website

If you’re running your business from a home office, you can claim a percentage of your home expenses for work use, such as:

• Rent or mortgage on your property
• Insurance costs, such as for contents insurance
• Rates and taxes
• Any repair costs to the premises
• Utilities, such as electricity or landline bills
• Cleaning costs

The amount you can claim depends on how often you work from home and how much of your space is used for business purposes.

2. Capital expenses

Capital expenses are the purchase of any major physical goods or services that you intend to use in the long run by your business. 

• Equipment and machinery to operate your business, such as tools or furniture
• Business vehicles
• Renovation costs for your office
• Hardware, such as computers and phones.

3. Education expenses

If you’re investing in training or further education to maintain or improve any skills associated with running your business, these also fall under business expenses. This includes education costs for you and your team members.

4. Entertainment expenses

Whether it’s a coffee with a potential client or live entertainment and catering for a business meeting, any expenses you incur while entertaining clients are tax-deductible come year-end. However, there’s a catch: you have to be able to prove to SARS that these expenses are business-related.

5. Other expenses

On top of the expenses outlined above, there are also a few other expenses you can claim in specific scenarios, including:

• Start-up expenses associated with getting your business up and running, and were incurred before your first year of trade. For example: if you purchased equipment for your business three months before you opened your doors, this still could be counted as a tax-deductible expense.

• Net operating losses for any losses that your business has made over previous years.
• Donations to a public benefit organization can also be claimed against your taxable income, provided the organization has a PBO number and can issue you with a tax certificate (known as a Section 18A certificate). 

While there are a lot of expenses that you can claim as tax-deductible, it’s incredibly important to get these right. 

If you’re audited by SARS and found to have claimed non-deductible expenses, you’ll have to pay additional taxes, as well as a penalty. On the other hand, if you overlook some tax-deductible expenses, you might end up paying more tax than you need to — sometimes even thousands more.

What contributes to home office tax deductions? 

It's no surprise that certain regulations and criteria exist to determine what qualifies as a business expense. Therefore, it's crucial to be aware of the allowable deductions within different categories.

To illustrate, having a clear comprehension of what constitutes a home office is essential. If you're working from a couch or dining table, you cannot include office space as part of your deductible expenses.

Essential requirements for an express tax deduction for home office:

• A separate room in the house or on the property,
• Exclusively used for business purposes
• Regularly used
• Properly equipped to facilitate the operation of your business.

Expensive furniture items like dining tables and couches cannot be claimed in full. Assets costing less than R7000 can be fully claimed, but those exceeding R7000 must be written off over time due to wear and tear. Don't assume you can claim the whole amount of expensive office equipment. Understanding these tax technicalities will prevent expense miscalculations.

How to claim your expenses

So should you keep your receipts? Yes, yes, thousand times yes. Regardless of what type of expenses you’re claiming, you need to have proof of each purchase — and that means receipts and invoices that meet the SARS tax invoice requirements.

When you have all your records compiled, you can pop in this amount in your tax return via SARS eFiling. Simply hop on to the eFiling website or MobiApp, input your expenses, and upload any supporting documents as needed. 

If you’re submitting travel expenses or using a company car, you need to keep a logbook as well throughout the year. Without this, you won’t be able to claim the travel. Luckily, SARS has an eLogbook that you can download and use to track on the go — or you can auto-track your mileage using accounting software like QuickBooks Self-Employed.

Once you’re done filling your tax return, don’t throw away your documents. SARS requires you to hang on to all your relevant records for at least five years, in the event that they request a review of your current and previous tax returns.

Keep track of self-employed expenses with QuickBooks

As a self-employed individual, it's essential to keep track of your expenses to ensure accurate record-keeping and simplify tax season. One way to do this is by using cloud accounting software for tracking your expenses.

How you record your tax-deductible expenses is completely up to you. However, that old cliche of storing your receipts in a shoebox certainly won’t work in your favor here — especially when you have to keep them for at least five years.

We recommend tracking your expenses on a regular basis, retaining proof of all expenditures (either as a hard copy or digitally), and using accounting software like QuickBooks. This makes it easier to keep an accurate record of your spending and saves a lot of headaches at year-end.

With QuickBooks accounting software you can easily record your income and expenses on the go. Just snap a photo of your receipt and upload it via the mobile app from anywhere, at any time. We’ll automatically extract the data and sort expenses into categories, making it easier for you to identify how you’re spending your money and submit your return at year-end. You can also record your kilometers and travel for easy input into the SARS eLogbook throughout the year.

If you’re ready to stay on top of your expenses and save time, QuickBooks South Africa is the best way to do it. Try it free for 30 days (no credit card required).

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