Top Tax Deductions Tips Every Tradie Should Know
Tax time can be as challenging as finding a parking spot in the CBD during rush hour. However, there’s no need to worry – we’ve got some practical tips to help you maximise your deductions and keep more money in your pocket. Whether you’re an electrician, carpenter, or plumber, understanding tax deductions is crucial for your bottom line. With that in mind, let’s look at some clever tactics that will add more value to your tax return and make tax season a bit less daunting for Melbourne’s hardworking tradies.
Ready to learn how to navigate the tax maze and potentially save yourself some serious cash?
#1 Understand Common Tax-Deductible Expenses for Tradies
Let’s break down what you can claim on your tax return.
Work-Related Expenses
When it comes to work-related expenses, your tools and equipment can be a goldmine for deductions. The Australian Taxation Office (ATO) allows you to claim these items, but there’s a catch: if they cost more than $300, you’ll need to depreciate them over time.
For example, let’s say you’re a carpenter and you’ve just spent $1,000 on a new circular saw. You can’t claim the full amount in one go, but you can claim a portion of it each year based on its depreciation.
Remember, keeping track of your work expenses throughout the year can save you a headache come tax time. So, next time you’re picking up supplies for the job, keep those receipts.
Vehicle and travel expenses
Do you use your ute or van for work? Good news! You can claim deductions for work-related car expenses. This includes things like fuel, repairs, and even lease payments. Just remember, you can only claim the work-related portion. In other words, if a vehicle is used for business and personal purposes, one is required to maintain records in a logbook in order to arrive at the work-related percentage
According to the ATO, in the 2019-20 financial year, the average work-related car expense claim was $2,940. That is something, isn’t it?
Clothing and protective items
Any of your items including safety vests, steel toe cap boots, safety gloves, or any other items that are considered your safety standard wear are all allowable deductions. But before you get too excited, your regular clothes (even if you wear them to work) aren’t claimable.
Home Office Expenses
These days, are you spending more time working remotely? You’re not alone. The ATO reports that work-from-home claims have skyrocketed since the pandemic. If you have an area in your home where you are doing paperwork or planning, you might be able to claim a portion of your home office expenses. This could include things like:
– Electricity for heating, cooling, and lighting
– Work area cleaning expenses
– Depreciation of office furniture and equipment
The ATO offers a simplified method where you can claim 67 cents for each hour you work from home. Easy as!
Miscellaneous Expenses
Don’t forget about those smaller expenses that can add up:
– Phone bills (work-related portion)
– Union fees
– Professional subscriptions
According to the ATO, the average claim for work-related phone and internet expenses in 2019-20 was $268.
Trade-Related Licences and Certifications
Your trade licence or certification isn’t just a piece of paper – it’s also tax deductible! This includes renewal fees for licences, registrations, or subscriptions that you need to do your job.
Training and Education Expenses
Upskilling is crucial in the trades and the good news is that many training costs are tax deductible. That’s right, those courses and seminars directly related to your current job could be putting money back in your pocket come tax time. Just remember, you can’t claim expenses for courses that only relate to getting a new job in a different field.
#2 Understand Business Structure and Tax Obligations
Here’s where things can get a bit complicated. Different business structures have different tax obligations. Are you a sole trader, partnership, or company? Each structure has its pros and cons when it comes to tax.
For a deep dive into choosing the best business structure for your tradie business, check out our comprehensive guide Choosing the Best Business Structure: Pros and Cons for Australian Small Businesses
#3 Always Stay Updated with ATO Guidelines
The ATO isn’t just the big wolf of the tax world – they’re actually here to help! Their guidelines are constantly evolving, so it’s important to stay up-to-date. Did you know that the ATO has specific guides for tradies? They cover everything from record-keeping to common mistakes.
Pro tip: Set a reminder to check the ATO website at least once a quarter. It’s like giving your tools a regular once-over – a bit of maintenance goes a long way!
#4 Do Not Mix Personal and Business Expenses
This one’s as important as not mixing your mortar too wet! The ATO is pretty strict about this – you must have personally spent the money and not been reimbursed. Why? Because the tax system is based on the principle that you can only claim deductions for expenses directly related to earning your income.
Let’s say you use your ute for both work and personal use. You can’t claim 100% of the expenses – you need to work out the percentage that’s work-related. This is where a logbook comes in handy. Keep it for at least 12 weeks to give an accurate picture of your work-related vehicle use.
#5 Maintaining a Record of The Expense
Remember when your old man used to say, “If it’s not written down, it didn’t happen”? Well, the ATO feels the same way about your expenses. Keeping detailed records is crucial for tradies to prove business expenses, maximise tax deductions, and stay compliant with ATO requirements.
Here’s what you need to keep:
– Receipts for all purchases
– Bank statements
– Logbooks for vehicles
– Home office running costs
The ATO requires you to keep these records for five years from the date you lodge your tax return. It might seem like a pain now, but future you will thank present you when the ATO comes knocking!
#6 Leveraging Technology
Gone are the days of shoeboxes full of receipts (although if that’s your thing, no judgement here!). There are now plenty of apps and software designed specifically for tradies to track expenses and manage finances. Some popular options include:
– Xero (as a Xero Platinum Partner, this is our favourite)
– MYOB
– QuickBooks
These tools can sync with your bank account, categorise expenses, and even help you prepare for tax time. It’s like having a tradie’s assistant in your pocket!
#7 Only Claim Real Items
This might seem obvious, but it’s worth mentioning – only claim for items you’ve actually purchased and used for work. The ATO has sophisticated data-matching capabilities, and they’re not afraid to use them. In fact, in the 2019-20 financial year, the ATO raised $3.4 billion in liabilities from compliance activities.
So, resist the temptation to inflate your claims or claim for items you haven’t actually bought. It’s not worth the risk, and let’s face it – honesty is the best policy, especially when it comes to the taxman!
#8 Consulting a Tax Professional
While DIY might be your middle name when it comes to your trade, when it comes to taxes it sometimes pays to call in the experts. A tax professional can help you:
- Identify all possible deductions
- Ensure you’re compliant with ATO regulations
- Maximise your return
- Save you time and stress
Think of it this way – you wouldn’t call in an accountant to fix your plumbing, so why try to be your own accountant when it comes to complex tax matters?
At Future Advisory, we specialise in helping tradies like you navigate the complex world of tax deductions. We understand the unique challenges and opportunities in your industry, and we’re here to help you keep more of your hard-earned money in your pocket.
Navigating tax deductions as a tradie doesn’t have to be as painful as stepping on a stray nail. By understanding what you can claim, keeping good records, and staying up-to-date with ATO guidelines, you can maximise your deductions and minimise your stress come tax time.
Remember, every dollar you can legitimately claim as a deduction is a dollar less you’ll pay in tax. So, take the time to get it right – your future self (and your bank account) will thank you!
Got questions about your specific situation? Don’t hesitate to reach out to us at Future Advisory. We’re here to help you build a stronger financial future, one tax return at a time.
