Small Business Tax Deductions You Might Be Missing

The end of the financial year is approaching, and the options to limit your income tax are dwindling. However, it is still possible to reduce your tax bill for 2021 without having to venture into risky investments. Review your options now as we help you with 5 tips to help you with your small business tax deduction.

Prepaid expenses

Every aspect of the business is important, whether it's understanding financial metrics or the money you have to raise each year.

A prepaid expense is something that you have already paid for in part or in full and have not yet used. It is valid for a limited period during which you can benefit from it. All expenses that have not expired and can be used in the future are still an asset on the balance sheet.

For example, you might want to insure the electronics in your office that were damaged by a rainstorm. The insurance pays for the new electronics. You don't have to take money out of your pocket. You can think of prepaid expenses as emergency funds that provide relief in times of need. When the time limit expires, it will be moved to the spending area.

According to tax auditors, tax deduction is the biggest benefit of the prepaid expenses practice.

Deductions for personal super contributions

Making your contributions to the super fund is a common way to boost the super fund and your business. It's a common method that's being adopted by several business owners to boost the super fund as well as to claim tax deductions.

In case you are still not aware of the concept, here's a lay person's definition for the term - "A personal super contribution is an amount you contribute to your business super fund from your monthly profit."

Make sure that you make this transfer from your deposit bank account to your super fund and not directly to the super fund from your business bank account. This will help you while you claim the tax deduction.

Some business travel expenses

If you are self-employed and travelling on business, e.g. you are to visit a customer, another company location or a trade fair, there are usually costs – for travel, accommodation and meals. These costs can be summarized in accounting under the term "travel expenses" and claimed as operating expenses, after all, these are business trips.

What has been said also applies to travel expenses incurred due to business trips by your employees.

The requirements for the tax office to recognize a business trip are:

• The traveller must be outside of the regular place of work and their own private home.
• The business trip must be professional.

These travel expenses can include airfare, train fare, taxi fare, accommodation and meals.

Depreciation of business assets

From an accounting point of view, depreciation is the recognition of the consumption of the economic benefits expected from the company's fixed assets, i.e. the recognition of the loss suffered by the value of the fixed assets which depreciate with use and the weather.

Example:

A company records in its balance sheet in 2016 equipment for a value of 10,000 dollars (purchase value). In 2017, this material will have lost its value. Amortization makes it possible to take into account each year the loss suffered by the company as a result of this depreciation.

Amortization is recognized as an expense, at the level of the company's profit and loss account. From a tax point of view, the depreciation of the elements of the fixed assets of the company constitutes for the latter a loss of substance, recorded by the accounts.

To maintain the initial value of the capital invested in the business, the operator must compensate for it by a levy on the profits of the operation. Thus, to reconstitute a capital that will allow the replacement of these fixed assets, the depreciation applied by the company is deducted from its taxable profit.

Instant business asset write-off

If you run a business independently, you also have to look at the expenses. A write-off can help save a lot of money.

What is a write-off?

The principle of depreciation is: Pay now and deduct later from the tax. Whether the desk at which a self-employed person is sitting or the laptop that is on the lap of the managing director - both objects are assets for the company and therefore part of the assets.

A write-off leads to a reduction in the tax burden through the acquisition of an asset. This allows business owners to claim an additional tax deduction and helps them run the business.

You may want to slow down and take a rest from your business matters. But it's worth stepping on the gas right now in tax matters. Several advantages can be exploited by cleverly managing to spend just before the turn of the new financial year. These five tips can help you get more value and profit out of your business in the long term.