For any business to claim its work-related expenses would require a specific set of documents that are directly related to your income and earnings. To be able to successfully claim a deduction, it is necessary to gather the necessary documents/records to prove it.
If your expenses involve both personal and work-related expenses, then you need to divide them into work and personal categories and claim the work-related portion accordingly.
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What are the pre-requisites for an expense to becoming eligible for the deduction?
For an expense to be deductible, it has to fulfil the following conditions such as:
- Incurred in performing employment activities. Some of the tax deduction examples include home office, phone expenses, and travel,
- Adequately linked to employment activities such as work tools/equipment, self-education expenses, and eligible clothing.
- The relation between the expense as well as income-earning activities. It has to be more than minor or remote, and the incurred expense isn’t only peripheral to the business activities.
What Important Records Should A Business Keep?
Business record-keeping is essential when the work-related deductions are greater than $300. In such a scenario, a taxpayer needs to furnish records to support his/her claims. So, let us see what records are. They are a receipt obtained from the goods or services supplier. It is required that receipt shows the following things such as:
- Name of supplier
- Nature of services or goods
- Amount of expense
- Expense payment date, and
- Date of the document
What Are The Guidelines For Keeping Records?
Record keeping is one of the good ways to deal with tax liability in the business. However, there are certain guidelines that a business should adhere to when keeping records. Let us know what they are:
- Records should be for five years from the time you have lodged your tax return.
- It is important to keep purchase receipts as well as a depreciation schedule for five years following the last claim.
The ATO may ask the taxpayer to produce the records in five years. It is required to provide adequate evidence for supporting your claims. Even if you fail to get the receipt from the supplier, you can claim a deduction when the ATO is convinced that the quality and nature of the evidence shows the following things:
- Spent the money, and
- Are entitled for claiming a deduction.
Evidence includes credit card statements and bank statements that show what amount was paid, when it was paid and who it was paid.
It can be difficult to keep business records. The right strategy would be to break down things into a chunk of manageable and straightforward tasks.
Ensure that you keep all files that contain information about payments, credit purchases, and sales, receipts, liabilities, and assets. Later, you can easily update and access them regular basis, rather than allowing the documentation to pile up.