Running a business is expensive. All the different assets and expenses really start to take a toll on your bottom line.
Thankfully, you can claim some expenses and losses as tax deductions. This will offer you a bit of financial relief at the end of every tax year.
The problem is, you can't claim all your expenses as a business tax deduction. If you claim the wrong one, you'll need to budget for a SARS penalty as well. Read on to avoid this happening to you.
Avoid costly tax issues
You can't claim a tax deduction on expenses that are capital in nature
Generally speaking, according to the Practical Tax Loose Leaf ,
an asset is capital in nature if you bought it to help bring in an income. This type of asset will also have long-lasting benefits for your company.
An example of such an asset would be the equipment you use to make your products or your billboard advertising.
To see if a certain asset is capital in nature, ask yourself:
1. Do I need this asset to run my business?
2. Does this asset bring in long-term benefits for the company?
If you answer 'yes', then it's capital in nature and you can't claim it as a tax deductable expense.
So then what assets aren't capital in nature?
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You can claim a tax deduction on expenses that aren't capital in nature
An asset isn't capital in nature if it helps you run or manage the assets that bring in income. You can claim these kinds of assets as tax deductions. For example, the oil for your equipment or the initial cost of putting up that billboard.
To see if the asset isn't capital in nature, ask yourself:
1. Do I need this asset to run the assets that bring in income?
2. Does this asset only have short-term benefits?
If the answers were 'yes', you can claim the expense of getting that asset as a tax write off.
With that information, you can claim your deductable expenses with confidence and get a little financial relief from SARS.