Your dream property purchase may be within reach if you can save more on your taxes. Don’t know how to save on your taxes? Keep on reading for some tips to help you in tax savings. 

When you’re self-employed in Sydney, your income may differ from month to month. Not only are you trying to build a business, but you’re also juggling your marketing, cash flow, product and service fulfillment, and taking control of your tax filings. Saving for a home when you’re self-employed can become a real challenge. And if the saving part isn’t hard enough – trying to get a home loan when you’re self-employed is also difficult if you cannot show lenders that you have a history of saving.

When you are self-employed, you may be able to claim income tax deductions for expenses that are related to your business. Every little tax-saving and deduction will accumulate towards a deposit for your new home. There are a wide variety of expenses that can be claimed; however, it is always best you take guidance from your tax accountant/tax professional or bookkeeper. Your tax accountant can help you navigate what claims you can and cannot make. 

A lot of small business owners are letting their tax deductions fall through the cracks. We have outlined some tips that can help you boost your savings through tax deductions. And how to utilise your taxes to benefit you when you run your own business and are self-employed. 

1. Separate your tax savings account

Once you are self-employed, it is important that you separate your tax savings account from your main business and personal account. You should have an account for your tax savings, one for business transactions, and one for your personal use. When you have different accounts, it helps you and your tax accountant have a simpler view of your expenses. If you decide to keep one account for your personal, business, and savings, your savings may get lost in your business and personal expenses. With every tax savings payment, allocate about 20 percent into your tax savings account. At the end of the financial year, you can view your accumulation of savings – purely from tax deductions. 

2. Claim your operating expenses including home office deduction 

Your operating expenses are classified as revenue expenses because they assist you in generating income. These can be claimed year on year. Operating expenses include salaries and wages, allowances and bonuses, payroll expenses, legal fees, accounting fees, marketing. And also advertising costs, inventory costs, business insurances, phone and internet, and travel expenses. In addition, funds that your business allocates towards research and development can also fall under the operating expenses category. 

With the disruption of COVID-19, employees and business owners were forced out of offices and into the home office. The home office is a deduction that people have been scared of taking. And yet it provides major tax savings for the self-employed.  If you do have a home office for your business, then you need to be claiming this as an operating expense.

A home office is an area of your home that is used exclusively. And regularly for business purposes – which means it cannot be used as anything else. This also means that your dining room or living room couch cannot be classified as your home office. Regularly means it needs to be used on an ongoing basis. This means using it only once a year won’t make the “regular” criteria. It’s all about consistency. In addition, you can claim the depreciation of certain office equipment. And in some cases, you may be able to claim occupancy expenses such as rent, mortgage interest, rates, and land taxes. 

There are three ways of calculating home office expenses depending on your circumstances. The methods are the:

  • Shortcut method
  • Fixed-rate method
  • Actual cost method

To make the most of your operating expenses and home office expenses deductions, have a chat with your tax accountant professional. They are experts in deductions and can ensure that you are claiming the right expenses. 

3. Turn charitable donations into expenses

In reality, most charities are not approved by the Australian Tax Office as a tax-deductible charity. If you do want to make a deduction on your donation, then you need to find a charity. That is an organisation endorsed as a Deductible Gift Recipient (DGR). And must be a genuine gift – you cannot receive any benefit from the donation. This means that purchases from a charity that involve raffle tickets, items, or food cannot be claimed as tax-deductible gifts.

In addition, this does not mean that you cannot claim a tax deduction from your business for the donation. It just means that you need to structure the deduction correctly. Your tax accountant can help you claim this – provided that you run your business through a family trust with a family trust deed. In this instance, you can claim deductions to any registered charity in Australia, regardless of if they are approved by the Australian Taxation Office or not. 

Feeling confused about how to claim a deduction from your donations? Chat to your accounting professional or bookkeeper, and they can help you navigate how to turn charitable donations into a business expense. 

4. Prepay your expenses and taxes!

Businesses that have a turnover of less than AU$10 million can claim an immediate deduction for prepaid expenses for up to 12 months in advance. When you prepay, you bring forward your deductions and can reduce your tax liability for the current financial year.  

In addition, you can prepay your taxes in advance, and this can save you from paying them when your business may not be doing as well. You can also receive discounts by paying in advance. 

You can also prepay your business loans and any other business expense that can be paid in advance including subscriptions, seminars, telephone, and IT services. Many services also offer discounts when paying in advance. 

5. Tools and equipment

If you need equipment to perform your job, then you can claim deductions on the purchases any time or over a period of time. This includes a computer, power tools or machinery, IT hardware, etc. 

You can claim up to $1000 in your annual tax return for tools and equipment that are required for you to perform your job. You can also claim depreciation on tools and equipment that are priced more than $1000 (including an instant write off on asset purchases up to an amount of $20,000)

Large acquisitions including IT servers, cars, and expensive equipment is claimed via a depreciation of capital value. You can claim 15 percent in the first year and 30 percent each year after the first year. 

These claims are all applicable even if you haven’t paid but have been invoiced before 30 June. Understating your business taxes, and claiming as much as you can help you put money aside for a Sydney home purchase. If you are unsure how to navigate the taxation system and need help with filing your taxes, then give us a call at our Eastern Suburbs tax accountant practice. We work effortlessly to understand and simplify all the tax information and assess what your business can claim. RT Taxation can help you focus on your business while you leave the boring tax stuff to us. We want you to have the confidence to run your business while our tax experts work on ensuring you are up-to-date with your tax requirements.