With the end of the financial year approaching, small business owners are getting ready to lodge their tax returns. While many entrepreneurs are familiar with common business expenses such as rent, utilities and office supplies, there are several lesser-known items that can also be claimed as deductions. Including all deductions that are available to you will significantly reduce your taxable income and maximize your savings. \

To help you make the most of tax time, we spoke to some experts to provide you with a list of eight things you might not have realised you can claim as an expense for your small business, plus some hot tips.

1. Prepaid Business Expenses:

By paying for the next financial year’s business expenses in advance (before June 30, 2024) you can claim the cost in the current tax year. Examples of expenses you can prepay include rent, insurance premiums, licenses and subscriptions.

Hot Tip

‍Clear accounts payable before June 30. If you’re a cash-only business, you can only claim expenses that have been paid for in the current financial year. By paying all invoices before June 30, it will allow you to claim the expense in the present financial year. If accounts are settled after June 30, you won’t be able to claim tax on the expense until the end of the next financial year.

2. Interest on Your Business Loan:

‍If you obtained a loan and the funds are used for business purposes, you can claim the interest charged on the business loan. You can also claim expenses involved in obtaining the loan. That makes June a great time to take out a business loan if you need one; so that you can reap the tax offset benefits immediately.

If you need a business loan, you can apply for one now with Bizcap; it takes less than 5 minutes to apply and requires minimal paperwork. What's more, we can approve the loan in as little as 3 hours and get funds into your account within the day.

Hot Tip

If you have a mortgage and a business loan, it might be worth paying off your mortgage first. This is because your mortgage is not tax deductable so can cost you a lot more than the interest paid. In other words, although your business loan may have a higher interest rate, you will save tax, which might mean you keep more money in your pocket at the end of the year by paying off your house mortgage first then claiming back more interest charges on your business loan.

3. Home Office Expenses:

If you operate your business from home, you can claim a portion of your household expenses as business expenses. This includes a portion of your rent or mortgage interest, utilities, internet bills and even depreciation on furniture and equipment used for business purposes.

To claim this deduction, you'll need to calculate the percentage of your home that is used for business and apply it to your total household expenses. Be sure to maintain sufficient evidence of every home office expense, including receipts, bills and invoices.

Note that if you claim home office expenses on your own home and receive rental income from your business, there may be capital gains tax (CGT) implications when you sell your home.  The CGT main residence exemption may not apply for that proportion of your home used for home office or business purposes, for the periods that you used it for your business. This would need to be considered when you sell your home and may give rise to a taxable capital gain. Ask your financial advisers to consider any potential CGT exposure.

4. Professional Development:

Investing in your skills and knowledge should benefit your business and, fortunately, the tax authorities recognise this, as costs associated with professional development are tax-deductible. This includes most or all expenses related to attending seminars, workshops, conferences and courses relevant to your industry. Subscriptions to professional journals or memberships in industry associations can also be claimed as business expenses.

Hot Tip

Small businesses will be entitled to an additional 20% tax deduction for external training courses delivered to employees, either in-person or on-line, by registered training providers (which can be verified online before purchasing the courses), so long as the eligible expenditure is incurred (or paid for) before June 30. That makes now a good time to purchase some courses!

5. Bad Debts:

‍Unfortunately, not all invoices are paid on time, and some may never be paid at all. The silver lining is that you can claim a tax deduction for bad debts, provided you have taken reasonable steps to recover the money owed. These might include sending reminders, issuing formal demand letters or pursuing legal action. Once you've determined that a debt is genuinely uncollectible, you can write it off as a business expense.

Hot Tip

If your business struggles with seasonal fluctuations you can read our article Seven Tips for Navigating Seasonal Fluctuations in Business for ideas to help you manage.

6. Stock Losses:

‍Any stock that is unsellable because it’s damaged, stolen or obsolete can be recorded as an inventory write-off prior to June 30. An inventory write-off is where the item is removed from stock-on-hand. Effectively, the stock no longer exists, thereby reducing your tax liability.

7. Write Off Obsolete Depreciating Assets

Have your business assets changed this year? Review your fixed asset register against the physical assets of your business before June 30, as any depreciating assets that have become obsolete, damaged or no longer in use can be written off. Note: you’ll need to calculate any depreciation expenses up to the date that the asset is written-off.

8. Instant Asset Write-off

The instant asset write-off (IAWO) concession allows eligible businesses – those with a turnover of less than $10 million – to immediately deduct the full cost of eligible assets purchased for their small business. If your business is looking to reduce its taxable income and improve cash flow (who isn’t?!), this concession is gold.

Hot Tip

Take advantage of this concession by claiming items of plant and equipment that cost less than the IAWO limit (discussed below) in full.  Items over the IAWO limit can be depreciated in a pool at 15% in the first year and then 30% each year after that. The kinds of items you can depreciate include tools and equipment, computers, laptops and tablets, office furniture, office equipment and motor vehicles (ie. cars, vans and tractors).

An eligible depreciating asset must be first used, or installed and ready for use, for a taxable purpose between July 1, 2023 and June 30, 2024. As of late May 2024, the “IAWO limit” for this financial year was yet to be confirmed, but it currently stands at $1,000. Federal Parliament is currently finalising amendments to the relevant Bill to increase the limit to either $20,000 or even $30,000. The next sittings of the House of Representatives resume on May 28, 2024, so watch this space!

(Note that the instant asset write-off is limited to the business portion of the car limit for the relevant income tax year. For example, the car limit is $68,108 for the 2023–24 income tax year. If you use your vehicle for 75% business use, the total you can claim under temporary full expensing is 75% of $68,108, which equals $51,081.)

What if your business has a turnover of more than $10 million? It doesn't get an immediate deduction and will need to depreciate assets over their effective life.

As you prepare for the end of the financial year, it's worth taking advantage of all available deductions to minimise your tax liability and keep more of your hard-earned funds.  While many expenses may not seem significant in isolation, they can add up to substantial savings. Remember what they say: if you count the cents, the dollars will come.

Finally, to maximise your claimable expenses, understand that it is crucial to keep meticulous records and seek advice from a tax professional to ensure compliance with Australian taxation laws and regulations.

Please note: This article is for general information purposes only and is not meant to be tax advice. The information in this article was contributed by Lowe Lippmann Chartered Accountants. If you need assistance with your taxes, seek help from a finance professional. For more information about claiming expenses and reducing your tax payable, visit the Australian Taxation Office website.