Many online entrepreneurs are unaware of available tax deductions and are missing out big time.
While FYF does not provide tax advice, this article will give you some idea of the kind of tax deductions you can expect as a self-employed online entrepreneur.
Always check your tax position with a suitably qualified local tax practitioner or accountant.
This is the type of information you seldom find elsewhere but is useful to know right from the get-go. While you may not reach a taxable income immediately (unless you also earn a salary of course), your income can ramp up very quickly once you become established.
Remember: it’s a good idea to keep all invoices and receipts from day 1, you’ll need them later.
The following article was provided by an FYF community member who is also a qualified Chartered Accountant.
Tax deductions for online entrepreneurs
Most entrepreneurs trade as self-employed or sole traders for tax purposes, and thus their taxable income would normally comprise:
Gross Income – Business Expenses = TAXABLE INCOME (i.e. profit before tax).
It’s important to understand your tax situation depends on where you live and work, and your local tax regulations. Thus, the following should be regarded as a general overview of some of the deductions available worldwide.
Your next step should be to consult a local accountant or qualified tax professional to review your personal situation and get advice on the best way forward in your local tax jurisdiction.
What is a Business Expense?
As a general rule, the tax definition of a business expense is a business cost that has been incurred solely and exclusively in your business to earn your income, excluding capital expenditure (although depreciation of such assets is normally allowed as an expense).
However, as you’ll discover below, some expenses have to be apportioned between business and personal use (e.g. smartphone/Internet).
Potential Business Expenses
(a) Dedicated business premises
If you rent specific accommodation for your business, the following can be claimed:
- General Maintenance
(b) Working from home
Usually based on space used exclusively for your office i.e. say 15 sq. meters of a total of 150 sq. meters = 10% of total running costs. This means you could likely claim 10% of:
- General Maintenance
- Mortgage interest (Not Mortgage Repayments)
Printing and Stationery
Hardware and Software
- Personal laptop computer
Apportion between business and personal use and claim allowances on the purchase of hardware over locally designated tax periods.
Medical Aid/Healthcare Insurance Contributions
Can be claimed for.
- Public liability
- Loss of earnings
- Office contents etc.
If you have to travel to a client, traveling, accommodation and subsistence are generally allowed, but rarely entertaining.
The rules regarding the deduction of the costs of running a motor car vary considerably worldwide.
However, as a general rule, assume it will be necessary to keep a logbook detailing your business and personal mileage and the total running costs e.g. petrol, insurance, repairs. Costs can be apportioned appropriately.
Advertising and Marketing
Business cards, brochures, sponsorships and press advertising
Internet, Cellphone and Phone Bills
Apportion between business and personal use.
Accounting, Legal and Professional Fees
Claim for all expenditure on professional fees.
The cost of a business website including domain fees, design, building costs, and maintenance.
Bank Charges & Interest on Business Bank Accounts
To avoid hassles with your local tax authority, it’s always advisable to open a separate business bank account for your business activities, especially in respect of your fees and direct business expenses.
Cost of Employees/Contract Labor
If you employ any staff or hire any other independent contractors or freelancers, all related costs are included in your business expenses.
I hope you found this article on tax deductions for online entrepreneurs informative, and it helps you claim what is rightfully yours!
Remember, start keeping good records of your income and expenses from day 1 – you’ll be glad you did 🙂