Most costs necessary to run your business are tax deductible but hold off from the shopping spree – some might not be tax deductible while others may surprise you to be legitimate expenses!
An expense incurred can be claimed even before you pay for it. However, you may not fully claim some costs that provide future benefits such as insurance in the year you incur them. Be careful when spending for items with a personal flavour to it as well. While the IRD won’t tell you what you should spend on, you can’t just go on a dinner date, call it an official business meeting, and be allowed to claim the cost.
Some may look necessary to run a business but are considered private like:
– travel to and from work
– office clothes
– team dinners
– business set-up fees
– overseas trips with non-working partners
– costs related to machinery installation, and
– debt repayment
These costs are considered personal. Expenses that have an ongoing benefit to your business for years are considered fixed or non-current assets and only a proportion of their cost each year is claimable as depreciation.
If part of your home is used for business, the IRD will accept a claim for its costs, which you can work out as a percentage of the total home. You can claim for:
– Insurance
– Rates
– Loan interest
– Repairs and maintenance
– Power
If you use the garage for business, you can include this area in the business share of costs. If you do not own the house, you can claim for rent in lieu of mortgage interest. You also need to keep supplier tax invoices and claim GST on the business use portion. If your business is a company, you will need to claim reimbursement from the company and not claim for the costs yourself as you are one of its employees. If your income is interest and dividends only, you likely can’t claim the costs of using your home to run investments.
Other tax deductions include motor vehicle expenses, telephone and Internet which can often be claimed half if the business use is reasonably significant, entertainment, and interest. These can get pretty tricky, so talk to us about it!
If you’re going to pay yourself an expense allowance, know that IRD prefers actual expenditure – they want to make sure all of the expense allowance is spent on business costs. An expense allowance may be allowed for a limited liability company if you’re an employee of the company. Discuss the right amount of allowance with your accountant. You should also keep some evidence if you want to claim for parking costs.
Our last tip would be to pay as much as you can using your business bank account and keep a notebook for petty cash items. Record the amount, date and nature of the cost and keep the receipts.
Our Business Clients
Cam recently caught up with Grant Douglas, owner of Makers Fabrication, to get his perspective on a few things. If you want to chew the fat with Grant further – get in touch and we’ll set it up.
Besides being pretty all-round top blokes, Matt and AJ are bloody screwed on when it comes to growing their business and smashing their goals.
Flick us an email or give us a buzz!
Outside Accounting
Address: Level 2, 182 Vivian Street,
Te Aro, Wellington 6011 New Zealand
Mail: PO Box 24-457, Wellington 6142
Phone: 04 889 2975
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