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The 2017 tax season opened for individuals on 1 July and taxpayers need to start gathering all the supporting documents needed to submit tax returns accurately and on time. If you own a startup or small business, nearly any purchase that helps generate income is tax deductible.
While you need to be careful to ensure that these expenses are genuinely claimable, some of these are commonly overlooked and could save you money come tax time. Here are a few tax deductions that you shouldn’t forget, as well as some tips that could save you money in the long term.
Many entrepreneurs run their businesses from their home to save on office costs. If so, you can claim some of your electricity and water bills, as well as home-insurance premiums, provided the policy covers business use.
The amount you can claim is often based on the floor space of your home office. You might also be able to deduct some of your rates and bond interest, but be aware that though this can create capital-gains tax implications when you sell the house.
2.Getting from A to B
Most business owners know petrol costs are tax deductible, but many neglect to claim tolls when they’re driving to a client site to undertake work. They can also forget to deduct the cost of train and bus tickets when they take public transport for work.
The simplest way to avoid this mistake is to get a business credit card and use it exclusively when paying for travel.
If you travel via Uber create a business profile in the app and track your work trips easily. And if your business takes you into the air, remember you can claim the cost of membership fees for lounges and the like.
Most South Africans contribute to worthy causes. Just make sure that when you do so it is to a reputable and registered organisation.
This not only ensures that your money gets to where it is meant to be going, but also that you are then able to deduct a portion of these contributions against your normal income tax, provided you are issued with a donations certificate from the non-profit organisation you donated to.
4.Small business tax rates
Your start-up could qualify for a far lower tax rate than the rates paid by most companies, if you meet the following criteria:
- Your company’s gross income must not be more than R20-million per year.
- Your members or shareholders must not have an interest or shareholding in another company (excluding listed companies and a few others).
- You must not be a personal services company (as defined for tax purposes).
- No more than 20% of your total receipts may come from investment income or personal services.
And, if you are able to record yourself as a small business corporation (SBC) on your tax return, you will not only qualify for a much lower tax rate but also be entitled to accelerated depreciation rates on certain assets.
For more on the current tax rates (for the 2016/17 year) click here to download the SA Revenue Services’ (Sars) tax guide (opens as PDF).
5.Use a registered (and reputable) accountant
Accountants should never charge you a percentage of the refund you get back — ever! And no accountant or tax practitioner should guarantee a refund. You are either due a refund or you are not — it is a simple matter of law and application.
Submitting claims incorrectly, or claims which you may not be entitled to, may be approved initially by Sars and result in a nice refund, but these stand every chance of being picked up as incorrect months (or years) later and could lead to unnecessary and often severe penalties and interest.
Some may say filing a tax return is easy, and sometimes it is, but for a few hundred rand making sure it gets done correctly may be a better option if you have a number of existing or potential claims like rental properties, investment income and/or other income.
If you prefer online support in completing your tax return why not try Tax Tim, a South African online tax assistant tool. And lastly always remember you are responsible for your tax return not your accountant, so make sure it gets filed and contains accurate and complete information.
Colin Timmis is the South Africa head of accounting at Xero