Tax-Deductible Business Expenses – A Complete Guide

Tax-deductible business expenses are costs incurred in the production of income or while running a business. These expenses can reduce your taxable income, lowering the amount of tax payable to SARS.

What Are Tax-Deductible Business Expenses?

Understanding tax-deductible business expenses is crucial for minimizing your tax liability and ensuring your business is compliant with SARS regulations. Even if you’re a small business owner or a sole proprietor, knowing which expenses are deductible can significantly lower your taxable income and save you money.

For example, stock bought for resale or stationery bought for the office are considered tax-deductible business expenses. By keeping thorough records of all your business expenses, you can easily claim them when it’s time to file your taxes. This is critical to maximising your tax deductions for businesses and ensuring that your business remains in good standing with SARS.

SARS Requirements For Claiming Business Expenses

To qualify as tax-deductible business expenses, SARS generally requires that expenses:

• Are incurred in the production of income.
• Are not private or domestic in nature.
• Are supported by appropriate documentation.
• Meet the requirements of the Income Tax Act.

It is also important to distinguish between revenue expenses and capital expenses, as different tax treatment may apply.

How to Claim Business Expenses

If you’re unsure how to claim business expenses, it’s essential to understand the specific requirements set by SARS. For a smooth and effective claim, ensure that your records are accurate and comprehensive. Tax-deductible business expenses such as business travel, home office expenses, and employee-related costs can lower your taxable income and reduce your overall tax burden. Consulting with a tax professional can help ensure you’re making the most of the small business tax deductions available to you.

Tax-Deductible Business Expenses For Sole Proprietors

1. Day-to-Day Business Expenses

These are general day-to-day office or business expenses, including items like stationery, petrol, and internet.

These expenses should all fall into one of the following categories:

• Material and equipment costs

• Employee costs and administration costs

• Office rental costs

• Office supplies

• Phone and internet costs

• Travel and transport, including business vehicle running costs

• Uniforms and PPE

• Wholesale purchase costs for inventory

• Financial charges (such as bank fees)

• Electricity, water, and other utilities

• Security costs

• Cleaning costs

• Legal fees

• Insurance fees

• Marketing, advertising, and promotional expenses.

Other expenses that should be included are:

• The cost of staff training that directly relates to their role at the company can be claimed as a business expense.

• Entertainment costs for clients can be deducted, i.e., drinks, meals, or live entertainment – you must be able to prove that these costs were incurred in the production of income.

• Business startup costs – these are costs before you started trading that you had to incur to start the business

2. Capital Expenses

These are large expenses that don’t crop up on a daily or monthly basis. Usually, these long-term expenses are budgeted well in advance. Examples include:

• Equipment and machinery

• Business vehicles

• Renovation costs

• Hardware, such as computers

• Signage

You can claim capital allowances for these expenses using the approved write-off percentage.

Types of Tax-Deductible Business Expenses for Commission Earners

For commission earners, SARS allows deductions for all commission-related expenses, including telephone usage, fuel, accommodation, and entertainment. Business expense claims should link to commission work to avoid being flagged by SARS.

1. Claiming Home Office Expenses

If you work remotely, SARS may allow you to claim home office expenses, including:

• Internet and data costs
• Electricity
• Rent
• Municipal rates and taxes
• Cleaning expenses

The deductible amount is calculated according to the percentage of your home’s floor area used exclusively and regularly for work purposes.

Your workspace must be a dedicated room or office area and cannot be a shared personal space such as a dining room table.

If you’re a remote worker who uses a coworking space like The Workspace, those office fees are still claimable as a business expense. This applies to freelancers and remote workers who are employed full-time by a company. You will need a letter from your employer stating that you work from home or remotely to be able to claim home office expenses.

Most Commonly Overlooked Business Expense Deductions

To ensure you’re getting the best tax savings, be aware of the most common and beneficial tax deductions for businesses:

• Vehicle expenses

• Office supplies and equipment

• Employee benefits

• Home office expenses

• Marketing and advertising costs

These business tax deductions are often overlooked, so it’s important to track them throughout the year.

Documents You Need To Support Your Claims:

Regardless of your business structure, tracking your expenses regularly is key to managing your finances effectively, maintaining positive cash flow, and ensuring accurate record-keeping.

Need Help With Your Business Expense Claims?

At Anlo Financial Solutions, we’re here to help you navigate the world of tax-deductible business expenses. Our team of accountants can guide you through the challenges of claiming business expenses to ensure you maximise your savings and reduce your tax liability. Visit our About Us page to learn more about our services, and check out our testimonial page to see how we’ve helped other businesses succeed.

Ready to get started? Contact us today for professional assistance with your tax-deductible business expenses and make tax season stress-free!

Frequently Asked Questions

What Expenses Cannot Be Claimed As Tax Deductions? 

Expenses that are personal, private, or unrelated to earning business income generally cannot be claimed as tax deductions. Examples may include personal living costs, private travel expenses, personal clothing, and expenses that are not supported by valid documentation. SARS requires that business expense deductions be directly linked to the production of income and properly substantiated. 

Can I Claim Home Office Expenses From SARS? 

Yes, SARS may allow a home office tax deduction if you work from a dedicated area in your home that is used regularly and exclusively for work purposes. Claimable expenses may include a portion of rent, electricity, rates and taxes, internet costs, and cleaning expenses. The amount you can claim is usually based on the percentage of your home’s floor area used as a home office. 

Can Sole Proprietors Claim Business Expenses? 

Yes, sole proprietors can claim tax-deductible business expenses that are incurred in the production of income. Common examples include office supplies, business travel, marketing costs, insurance, telephone expenses, and home office expenses where applicable. Keeping accurate records and supporting documents is essential when submitting business expense claims to SARS.