There are many perks to owning an online business. Aside from working on your own terms and in any location you prefer, you can also claim deductions from your taxes. If you are a home-based business owner, make sure that you have a proper understanding of what types of business expenses you can claim and what you can’t. Making incorrect claims can result in a penalty that can hurt your income.
If you don’t want to incur more charges but want to have the confidence to claim what you can, working with a bookkeeper is the best thing to do. This article will also go over the basic facts you should know about the topic.
Defining a Home-Based Business
Here is an important thing to remember: You can only claim any expenses that are made for your business’s benefit. That means that you need to clearly separate your home from your office space, and that includes all your expenses.
To elaborate, here are two common scenarios you can use as a reference:
Scenario 1: You are a service provider who lives and works at home, or you have a small business wherein your home serves as your “office” or “warehouse.”
If this is the case, you need to be as detailed as possible with your expenses if you want to make a claim. If you are a home-based employee for a remote company, you should keep a record of your work time and your home routine. Having a bookkeeper can help you with tracking. For example, if you use one number for both personal and business use, you can only claim for those calls that are purely business-related.
Scenario 2: You have a separate office in your house but still work inside your home from time to time. People with this setup are more eligible for claiming deductions since distinguishing between expenses will be easier, given that they have a separate space for work. Similar to scenario one, you still need to be detailed with your expenses, especially when you work outside of your home office.
What Expenses You Can Deduct
If you do not want to get into trouble with the ATO, you need to be aware of the expenses that are eligible for claiming. Here are some of them:
Communication (expenses for calls or internet use): Make sure that you can provide a call log enumerating your business call
Utilities (includes air conditioning, electricity, and water): You can only claim running expenses of your separate workspace. Just because your landline works 24 hours does not mean you can claim a whole day’s worth of electricity for it. You will need to provide proof of billing for this.
Occupancy (rent or mortgage): People generating PSI or personal services income can claim expenses for their rent or mortgage
You and your bookkeeper need to work together to secure all the records for your filing. For a more detailed list, refer to this document.
The secret to filing your expenses correctly and getting all the money you can claim is knowing exactly what they are and keeping a detailed record of your schedule and transactions. As your business grows, all these details will become more difficult to manage, so make sure that you are working with an efficient and trusted bookkeeper to help you monitor everything.
Let an ECommerce accounting firm help you manage your finances. At The ECommerce Accountant, our goal is to help online entrepreneurs minimise their taxes and maximise their profits. Contact us today to learn how we can help.