A tax-deductible expense is an expense that can be deducted from a business's gross income in order to reduce its taxable profit. But it’s not always easy to get your head around. If you are new to business here’s the basics on tax-deductible expenses.
Why can businesses deduct expenses from their income?
By letting businesses deduct certain expenses from their income, the government is effectively reducing the amount of income that is subject to tax. This helps to make it more financially viable for businesses to operate and invest in growth, which in turn can lead to job creation and economic development.
What expenses can businesses claim as tax deductible?
New Zealand businesses can claim a variety of expenses as tax deductions. Some examples include:
Employee wages, salaries and superannuation
Rent or lease payments on business premises
Repairs and maintenance of business assets
Insurance and legal expenses
Travel and accommodation expenses related to business activities
Office expenses, such as stationery and telephone costs
Depreciation of business assets
Interest on business loans
Professional development and training expenses
Advertising and marketing expenses
Research and development expenses
Business-related vehicle expenses, such as fuel and maintenance
Business-related entertainment expenses, such as meals and accommodation
Expenses must be directly related to the business and not of a private nature and you need to be able to prove that the expense was incurred in the production of accessible income and not capital in nature.
If you work from home, check out our blog on claiming your home office expenses here.
How can a business claim tax deductible expenses?
A business can claim tax deductible expenses by including them in their annual income tax return. This will require the business to have accurate and detailed records of all expenses incurred throughout the year that are related to their business operations. This is where accounting software, like Xero, comes in handy!
Inland Revenue has specific rules on what qualifies as a valid business expense, so it's always best to check with one of the My Two Cents team, Inland Revenue or your accountant for more specific information.
When do you need to file a tax return?
Businesses are required to file their income tax returns annually. The due date for filing an income tax return for a business is usually 7th July, after the end of the tax year.
If you have a tax agent or an accountant, you will typically get an extension of time for filing. This gives you until the following 31st March to file your returns.
It is always best to check with one of the My Two Cents team, Inland Revenue, or your accountant to confirm the correct filing due date for your income tax returns. Late filing of income tax return may incur penalties and interests.
Get in touch if you’d like one of our accountants to help with filing your returns.