What sole traders can and can’t claim this tax time

With the ATO watching closely this tax time, sole traders can rest easy and claim these business expenses this year.

With the end of financial year fast approaching, experts are sharing tips on what tax claims sole traders can lodge in order to maximise their tax returns this year.

Recent research unveiled by digital accounting service Hnry showed sole traders on average miss out on over $5500 in unclaimed expenses each year.

A sole trader is defined as someone who is self-employed, runs their owns and runs their own business as an individual.

This can range from freelance writers, wellness professionals and contract tradies.

Sole traders include many small businesses in the hospitality industry such as cafes. Picture: NCA NewsWire / Nicki Connolly

The data showed that only 64 per cent of sole traders claim any and all of the business expenses that they’re entitled to. 31 per cent claim some expenses and 5 per cent reported that they didn’t claim at all.

When those who don’t claim all expenses were asked, 33 per cent admitted to being unsure of what they’re entitled to claim and what they can’t claim, while 35 per cent stated the admin side was stopping them.

Some of the things sole traders can claim this tax season range from digital marketing tools such as email marketing and analytics tools, investments made for going green like recycling programs and eco-friendly supplies.

One claim that many may not be aware of is music subscriptions and equipment costs for businesses such as retail stores or cafes.

For those who work outside for long periods of the day, if you bought any sun protection items such as sunglasses, sunscreen or hats, you can claim that back.

Hnry’s Managing Director in Australia, Karan Anand said they often hear from their customers how difficult tax time is.

Hnry’s Managing Director in Australia, Karan Anand. Picture: Supplied

“We often hear how difficult sole traders are finding either understanding which expenses to claim, how to lodge expenses and how they’re actually going about it,” Mr Anand said.

“What you can see from the stats we’ve shared is there’s a surprising number of sole traders who aren’t claiming expenses, and leaving a lot of money on the table. The number one reason (we were given) was that the calculations were too complicated.”

Mr Anand advises those to think smartly when purchasing things for their business and not to buy something “just for a tax write off”.

“Don’t just spend your money because you think you’ll get a tax reduction out of it. Make that expense make sense from a business perspective.”

If you’re outside for work such as farmers or tradies, you can claim back any sun protection equipment. Picture: NCA NewsWire / Gaye Gerard

This advice comes after the Australian Taxation Office (ATO) released their tax ‘hit list’ and announced they’ll be keeping a closer eye on those incorrectly claiming work-related expenses, failing to include all income when lodging and anyone inflating claims for rental properties.

While these are the most common errors made by tax payers and can be actual mistakes, ATO’s Assitant Commissioner Rob Thomson said some people make these errors on purpose.

“These are the areas that people are most likely to get wrong, and while these mistakes are often genuine, sometimes they are deliberate. Take the time to get your return right,” he said.

The ATO also advises people to not rush into lodging their tax returns and those with multiple sources of income to wait it to be all pre-filled.

“We see lots of mistakes in July where people have forgotten to include interest from banks, dividend income, payments from other government agencies and private health insurers,” Mr Thomson said.

With the current high cost of living, people are claiming back whatever money they can. Picture: NCA NewsWire / Nicholas Eagar

The top 5 most common expenses claimed by sole traders, according to Hnry are:

– Bank Fees: These are mainly for work transactions and not including account-keeping or overdraft fees.

– Subscription Fees: For any recurring subscription costs on business-related products such as relevant online magazines, software costs or licensing fees.

– Equipment Purchases: Mainly for work essentials such as software or mobile phones. However if used for both business and personal, can only claim business portion of the cost.

– Mobile Phone Bills: Can only claim a percentage of the business use.

– Cost of Goods Sold: For materials used in work or services provided.

The top 5 expenses that can’t be claimed by sole traders:

– Personal Living Costs: This ranges from household bills, groceries or childcare costs.

– Giving Yourself A Wage: For sole traders, all business income is considered personal income.

– Home Renovations: Boosting property value by doing home renovations can’t be immediately deducted.

– Private Health Insurance Premiums: Health insurance premiums can’t be deducted as a business expense.

– Fine and Penalties: Any government-imposed fines such as parking and traffic fines are not deductible.

Originally published as What sole traders can and can’t claim this tax time