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Self-Employed Expenses - What can you claim

02 Jun 2024
Author: Neil Helps

Self-Employed Expenses - What can you claim

Are you working for yourself? Keep track of your expenditures with these guidelines that cover the fundamentals, including what is and isn't deductible.

As a small business owner, you will have basic expenses like office supplies, advertising, and car mileage.

At the end of the year, you can deduct certain expenses from your taxes. You must allow the expenses to qualify for the deduction.

It seems simple on the surface: you monitor your expenses and income and record it when it's time to file taxes. However, you might face questions during this process. These could be basic inquiries like "What can I claim as a self-employed individual?", or more intricate ones such as "What percentage of my fuel expenses can I claim?"

In this blog, we dissect everything you need to understand about deducting expenses while being self-employed.

What are tax-deductible business expenses?

Tax-deductible business expenses are any expenses you spend on the operation of your business. 

Operating a business definitely isn't inexpensive, particularly when you're in charge. You need to pay for all the large expenses, such as rent for office space and your company car. In addition, you also need to pay for smaller things like pens or buying coffee for your client.

When you file taxes with SARS in South Africa, you can deduct some expenses from your business income. For example, let’s say you made R600,000 during the tax year and made business purchases worth a total of R50,000. In this case, your taxable income will be R550,000 instead of R600,000, which reduces the amount of tax you owe for that year.

What expenses can I claim from SARS?

According to SARS, deductible business expenses are “expenses incurred in the operation of a business”. In essence, any acquisitions you make to operate your business are considered as expenses for self-employment.

Some of the most common allowable business expenses for self-employed include:

1. Day-to-day business expenses

This includes all financial outgoings that are incurred as part of running your business, such as:

  • Rent costs for your business or office
  • Office equipment costs, including supplies, furniture or computer software
  • Costs associated with your business premises, such as heating and lighting
  • Staff costs, including salaries and any admin costs
  • Phone and internet bills
  • Travel and transport expenses, like petrol for your business vehicle or flights and accommodation for a work trip
  • Any clothing needed to run your business, such as work uniforms
  • Wholesale purchase costs for goods resold (i.e. stock)
  • Financial costs, including accounting, legal and insurance fees
  • Marketing, advertising and promotion costs, including the cost to run your website

If you’re running your business from a home office, you can claim a percentage of your home expenses for work use. These range from:

  • Rent or mortgage on your property
  • Insurance costs, such as for contents insurance
  • Rates and taxes
  • Any repair costs to the premises
  • Utilities, such as electricity or landline bills
  • Cleaning costs

You can claim an amount based on how often you work from home and how much of your space is used for business purposes.

2. Capital expenses

Capital expenses are big purchases of major physical goods for your business that you plan to use over the long term, like equipment or services. 

  • Equipment and machinery to operate your business, such as tools or furniture
  • Business vehicles
  • Renovation costs for your office
  • Hardware, such as computers and phones

3. Education expenses

Should you be putting money into training or advanced education to sustain or enhance any abilities related to managing your enterprise, these too are categorized as business expenditures. This includes education costs for you and your team members.

4. Entertainment expenses

Whether you're having a coffee meeting with a prospective client or arranging live performances and food services for a business gathering, any costs you bear in the process of client entertainment can be deducted from your taxes at the end of the fiscal year. Nonetheless, there's a caveat: you must demonstrate to SARS that these expenditures are associated with your business.

5. Other expenses

In addition to the expenses mentioned earlier, there are a few more expenses you can claim in certain situations. These include:

  • Initial costs related to setting up your enterprise and incurred prior to your first trading year are known as start-up expenses. For instance, if you bought equipment for your business three months prior to its inauguration, this could still be considered a tax-deductible expense.
  •  Net operating losses for any losses that your business has made over previous years.
  • Contributions to a public benefit organisation or welfare entity can be deducted from your taxable income, given that the entity possesses a PBO number and is able to provide you with a tax certificate (referred to as a Section 18A certificate). 

Although numerous expenses can be claimed as tax deductions, it's crucial to handle this correctly. 

In case you're scrutinized by SARS and discovered to have reported non-deductible costs, you'll be required to pay extra taxes, along with a fine. Conversely, if you neglect certain tax-deductible expenses, you could potentially pay more tax than necessary — occasionally even thousands more.

What contributes to home office expenses for tax deductions? 

It's not unexpected that there are specific rules and standards in place to define what constitutes a business expense. Therefore, it's crucial to be aware of the allowable deductions within different categories. it is important to distinguish between personal and business expenditure.

For example, it's crucial to understand the definition of a home office. If your workspace is a sofa or a dining table, you can't count office space in your tax-deductible expenses.

Essential requirements for an express tax deduction for home office:

  • A separate room in the house or on the property,
  • Exclusively used for business purposes
  • Regularly used
  • Properly equipped to facilitate the operation of your business.

Expensive furniture items like dining tables and couches cannot be claimed in full. You can fully claim assets costing less than R7000, but you must write off those exceeding R7000 over time due to wear and tear. Don't assume you can claim the whole amount of expensive office equipment. Understanding these tax technicalities will prevent expense miscalculations.

How to claim your expenses

Should you keep your receipts? You must keep receipts and invoices for all expenses you claim. These documents should meet SARS tax invoice requirements. They serve as proof of each purchase.

If you’re submitting travel expenses or using a company car, you need to keep a logbook as well throughout the year. Without a travel logbook, you won’t be able to claim the travel. SARS has an eLogbook that you can download and use to track on the go.

After you finish filling out your tax return, do not throw away your documents. SARS wants you to keep all your important records for five years in case they need to review your tax returns.

Are you ready for the Tax Season? Call us today so that we can assist with your submissions.

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