A Guide to Claiming your Business Expenses

It is unavoidable for most businesses to incur costs while generating income. Most of these expenses can be deducted from the business’s income to arrive at the net profit or taxable income, hence the question, how can you claim your business expenses?

The tax you pay is calculated based on this amount hence, when you claim expenses, that amount is deducted meaning that you will pay tax on a much lower amount. Claiming your business expenses is a great way of helping out your business to have a greater chance of success. In the long run, you can end up saving a good amount of money by claiming some costs.

For a business expense to qualify as deductible, it must be both necessary and ordinary. A necessary expense is one that is helpful in the business whereas an ordinary expense is the one that is common and accepted in your business or trade. Discussed below are a number of ways on how to claim these expenses.

Rent and Bills

Most people tend to use a small area or space in their homes for work purposes. If this case applies to you, you can make a claim for the used area. You may deduct expenses for the business use of your home. Such expenses may include; insurance, repairs, mortgage interest, utilities and depreciation. However, there are some limitations regarding the costs that you can charge through your business. The amount of rent you can claim is all based on the space dedicated solely to actual business. For instance, if you use only ten percent of your office space for business, you can claim ten percent of your rent as an expense.

Mileage Rate

If you are self-employed or in a partnership, and you happen to use your private car for business purposes, calculating the mileage accrued is another way of how you can claim your business expenses. On the other hand, if you are an employer, you can calculate an employee’s reimbursement for the cost incurred when using their private cars for business purposes. In addition, you can deduct any payment made to your employees for their services towards your business.

Business Vs. Personal Expense

You can make a claim if you use something partly for business and partly for personal reasons. In this case, you can only claim allowable expenses for the business costs. In such an instance, divide the total cost between the personal and business part and then deduct the business part. For example, if you have borrowed some money and use 60 % of it for business and the other 40 % for personal reasons such as a vacation, you can deduct 60% of the interest as a business expense.

Capital Allowance

Some costs can only be capitalized rather than be claimed and they include things like gifts of equipments, machinery and fixtures to charity. These costs are referred to as capital expenses and are part of your investment in your business. They are basically considered as assets in your business and they take three forms which are business assets, improvements and business start-up cost.

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Posted on May 5, 2023