You can claim numerous tax deductions as a sole trader. The trick is understanding all of them because you don’t want to claim anything you’re not entitled to, but you also don’t want to miss the little-known tax deductions that could save a bundle on your tax return. Many of these deductions escape even the savviest sole traders, so read on to learn precisely what you can claim and ensure you’re not missing out.
Can a Sole Trader Claim Car Expenses?
As a sole trader, your car can be more than a reliable work tool – it has the potential to be one of your biggest claimable expenses that can lessen your tax burden significantly.
You can claim your car expenses if you need to travel from job to job. If the car you use is less than one tonne and designed to carry fewer than nine passengers, you can claim these costs:
- Fuel and oil
- Repairs and servicing
- Loan interest
- Lease payments
- Insurance premiums
You can’t claim car expenses if you only drive between your home and workplace, even if you work in an unusual location. Even if it’s not your normal work location or you have to work outside of normal business hours, you generally can’t claim related car expenses. However, there are exceptions. In limited circumstances, you can claim the cost of driving from home to work if you have shifting places of employment – i.e. if your workplaces regularly shift during the day before you return home. If you’re unsure about whether you’re eligible to claim car expenses, seek the help of an ITP accountant when completing your sole trader tax return.
Have you heard of the bulky tools rule? If you’re required to carry bulky tools and equipment, have no safe place to store your tools at your workplace, the equipment is too awkward to transport by any other means, and the tools are essential to earning your income, you can claim your car expenses whilst transporting those tools.
If you claim car expenses, you’ll need to claim using the cents per kilometre method or the log book method. You’ll need a log book to show your work-related percentage or show the Australian Taxation Office (ATO) the reasonable way you calculated using the cents per kilometre method.
What Tool and Equipment Expenses Can Sole Traders Claim?
As a sole trader, you need the tools of your trade to do your job. You can claim tax deductions for the equipment you use, whether that be power tools or Photoshop. Just keep in mind that if you use something for both work and private applications, you can only claim the work-related portion. If your tool or equipment is used more than 50% of the time for private use, you can’t claim a tax deduction. For example, if a cleaner purchases a vacuum cleaner but mostly uses it to clean their home, that would not count as a deductible expense.
If your tool or equipment costs more than $300, you can claim a deduction for the decline in value of the asset over a number of years. These are known as depreciating assets, and they present one of the trickier tax deduction opportunities many sole traders miss. If you spent $300 or less, you can claim an immediate deduction for the whole expense. If you are an eligible business that chooses to use “temporary full expensing,” then there is no $300 threshold. You may be able to immediately write off the value of any tools purchased up until the end of the current financial year.
Can I Claim Travel Expenses as a Sole Trader?
You can claim the cost of travel if you’re required to travel overnight and don’t attend your usual work location. For example, if you’ve travelled to a remote location to do your job. Claimable expenses for sole traders in such circumstances include meals, accommodation, fares, and incidental travel that you incurred while providing your duties.
Just keep in mind that if you received an allowance of any sort, you can’t claim these travel expenses as a tax deduction.
What Clothing and Laundry Expenses Can Sole Traders Claim?
You generally can’t claim clothes that are private in nature, even if you do wear them for work. This type of clothing includes corporate office attire, black pants, jeans, sneakers, and other everyday shoes. However, there are a few cases in which you can claim clothing and laundry expenses.
Protective clothing can be claimed if you need to wear it to avoid injury and guard against specific risks. The clothing must be a requirement for your job and have protective features or functions. Examples include steel-capped boots, non-slip shoes, and high-vis vests.
Compulsory uniforms can be claimed if they are distinctive to a workplace and easily identify your job. For example, the clothing worn by air hostesses or beauty workers.
What Home Office Expenses Can I Claim?
Sole traders typically have a home office, and this opens up a range of tax deductions you can claim. Claimable home office expenses may include running costs, such as electricity and gas, the decline of equipment and furniture, and phone and internet expenses. To make life easy for you, we’ve developed a guide for claiming home office expenses, including an extensive list of what you can claim.
Can I Claim Self Education Expenses?
As a sole trader, you’ll want to keep on top of your industry. If you undertake any courses to maintain or improve your skills and knowledge or increase your earning capacity, keep those receipts. Your self-education expenses can be claimed.
Note that you can’t make a claim if your education is general or is designed to get you a different job. For example, you can’t claim a Bachelor of Nursing if you’re working as a personal care assistant.
Other Common Tax Deductions for Sole Traders
Other ordinary expenses can also be claimed, including:
- Advertising and marketing expenses
- Legal costs
- Accounting and tax lodgement expenses
- Bank fees
- Insurance premiums
- Interest on bank loans
- Relevant software subscriptions
- Union fees
- Industry journals and magazine subscriptions
- Repair and maintenance of your work equipment
To claim any of these sole trader tax deductions, evidence is key. You’ll need to keep your receipts, bank statements, financial records, and contracts. Your expense must already be paid before you claim, and you can only claim work-related expenses that directly relate to earning your income. If your expense was a mix of private and work, you’ll need to determine the work-related portion and claim only that as your expense.
How to Maximise Your Tax Return
Working as a sole trader is varied. No two jobs are exactly alike, and no two tax returns will be identical either. This means that what one sole trader can use as a tax deduction, another might not be eligible to claim. Indeed, as your circumstances change, you may not even be eligible to claim a deduction you used last year. For these reasons, it always pays to know exactly what you can claim, how to do it, and what evidence is required.
Claiming all of your tax deductions can make a huge difference to your tax bills and profit margins. With half a century of experience helping Aussie business owners, there’s not a lot your local ITP Tax Accountants don’t know about tax. Trust the people who have made a living out of saving people time and money – phone 1800 378 487 and chat with a friendly accountant today.