Back in 2002, a study revealed that 58 per cent of all Australian businesses are home-based. This number has significantly grown as the amount of actively trading companies rose to 2,402,254 in 2021. By 2024, the eCommerce market is projected to be worth USD32.3 billion.
Operating your business at home has its benefits. Your hours are flexible, your commute is non-existent, and your dress code is extremely relaxed. However, when you work at home, you also have to shoulder all the operational expenses—the internet bill, phone bill, and utilities.
Before you compute how much product you need to sell to cover your overhead costs, you may want to ask your eCommerce accountant about deductible expenses.
Occupancy Expenses Tax Deductions
Occupancy expenses are home expenses that are not necessarily tied to your business. You can write off your council rates, insurance premiums, rental costs, and even your mortgage interest if you qualify.
For example, if you are trying to get tax deductions for your home’s rent, you have to prove that you’re using your whole house to run your business. The entire space should have the characteristic of a place that is set exclusively for business use. Otherwise, only the room in the house that you dedicate solely to running your business is eligible for the claim.
There are two ways to compute deductions on occupancy expenses: based on the percentage of the area of the house you use for the business and based on the proportionate market value.
The more common and easier to compute of the two is basing it on area percentage. It means that if your operation base is 15 per cent of your home, you can claim 15 per cent tax deductions on your council rates, rent costs, and more. You can discuss occupancy tax deductions and mortgage interests with your eCommerce accountant because they are pretty tricky to understand.
Running Expenses Tax Deductions
While occupancy expenses consider where you do business, running expenses take into account what you use for your business. These are your electricity bill, gas bill, phone bill, and more.
It is relatively easier to claim deductions for running expenses. All you need to do is to prove that you are using it exclusively to operate your business. Otherwise, you have to compute it based on the percentage of use.
There are different ways you can calculate for running expense tax deductions: the fixed-rate method, actual cost method, and shortcut method. The Australian Taxation Office has kindly provided calculators to help people compute claims on their running expenses.
The fixed-rate method allows you to claim 52 cents for each hour you work on your business. On the other hand, the actual cost method accounts for the percentage of use of all facilities and utilities. Meanwhile, the shortcut method allows you to claim 80 cents per hour on all running expenses. However, you can only use this until 30 June 2022.
Running your business empire from home is not all fun and games. Yes, there are a lot of advantages, but there are also plenty of challenges and expenses that come with it. That is why tax deductions are always welcome.
When running your business at home, you are eligible for tax claims on occupancy expenses and running expenses. Sure, you can compute all these alone, but you can also hire professional eCommerce accountants and bookkeepers to make things more manageable for you. Let them handle the taxes while you think of new business innovations!
Are you looking for some of the best eCommerce accountants in Australia? The ECommerce Accountant is at your service. We are an award-winning firm with experienced accountants and bookkeepers that can bring your business to the next level. Team up with us today!