Business expenses are incurred all year round, but they tend to come under the microscope at the end of the financial year.

No one wants to pay more tax than necessary, but it is important to abide by the rules and only claim for legitimate expenses!

There are many expenses that can be claimed as a business expense.

However, there are just as many that can’t and are considered personal costs to you.

So, let’s explore which costs can be claimed as a business expense.

What Is A Business Expense?

Expenses are the costs that you incur in the day-to-day running of your business. They can include the usual revenue expenses for running your business such as marketing, accounting or wage costs, along with the assets you purchase for business use, like computers, vehicles, machinery etc.

These necessary costs can seem like a drag to factor into your budget. But, there is an upside to business expenses, they can potentially reduce the amount of tax you need to pay.

Tax is calculated on your annual profit. The amount of tax you will pay is calculated by taking your total income and subtracting your business expenses. Tax is then charged on the profit portion that remains after that calculation. So, the more expenses you claim, the less tax you have to pay.

BUT, you need to follow the rules of what constitutes a business expense. You can’t run personal or inapplicable costs through your business simply to reduce your tax bill.

What Can You Claim?

Here is a basic list of the expenses you can claim through your business:

● vehicle expenses, transport costs and travel for business purposes

● business rent or interest paid on a mortgage taken out to fund the purchase of business premises

● cost of sales such as purchasing stock or materials

● salaries, wages and contractor costs for staff who work in the business

● depreciation on items like computers and office furniture

● interest on borrowing money for the business

● marketing and advertising

● some insurance premiums

● work-related journals and magazines

● membership for professional or trade associations

● costs when travelling for work (not standard commuting)

● work-related mobile phones and phone bills

● freight, postage or courier costs for sending products

● software and internet costs

● applicable licenses, registrations and subscriptions

● Stationery, printing, tools and equipment

● work uniforms

● professional development and business coaching

● fees for professional services such as bookkeepers, tax agents or legal fees

● client entertainment costs like food, coffees, gifts etc. (only 50% off these costs can be claimed) 

If you work from home, you can also claim a portion of the following costs:

● land and water rates

● power

● house and contents insurance

● interest incurred on your mortgage

● rent if you are renting the home

How much you can claim for working from home costs will depend on the area in your home that you use for work. One way to work out your home office expenses is to use a percentage calculation. For example, if your home is 100 square metres and you have a home office that takes up 10 square metres, you can claim 10% of those household costs as a business expense. There are other home office calculations that can be used, for further info, you can check out the IRD website or chat with your bookkeeper.

What Is Not A Business Expense?

It should be simple to work out what is a business expense, but there are some grey areas that can make things confusing. For example, you can’t claim your family’s weekly groceries as a business expense, but you can claim for food purchased while entertaining clients or tea, coffee and milk consumed in your office or workspace.

Here is a list of the common items that get confused:

● personal costs like eating out with the family or events you attend that are unrelated to work

● clothing and shoes (other than uniforms or protective gear)

● haircuts, beauty treatments or makeup (even if you need to present yourself as your brand)

● childcare and school fees

● doctor’s visits, glasses, hearing aids and other health related costs (including vet bills)

● fines and penalty payments

● personal insurances

● GST payments

● tax payments

● gym subscriptions

● personal travel and accommodation

The Nitty Gritty

There are some very specific rules when it comes to claiming business expenses. So, it is best to chat with your Bookkeeper to establish if you are claiming correctly.

While some things are considered a business expense, you may not be able to claim the full amount. Client entertainment and gifting fall into this category. For many elements, like coffee away from the office, dinner bills, and gifts, you can only claim 50% of the cost as a business expense.

It is also important to note the specifics of the rules. Magazines and subscriptions that are related to your business are acceptable business costs, however, publications like the Woman’s Day and subscriptions for personal use like Netflix do not fall into this category!

A final consideration is expenses that are partly for business use and partly for personal. Often this includes vehicles, phones and home expenses. Depending on the particulars of your business, it is often possible to claim the cost of using your personal vehicle for business use; such as driving to a meeting or delivering goods. But, you cannot claim the costs related to private use. The same goes for your home office expenses. As we already mentioned, you can claim a portion of the costs related to the operation of your business within your home.

The Final Word On Business Expenses

As you can see, there is not one simple answer to the question of what can be claimed as a business expense. For that reason, it is best to seek the advice of an expert Bookkeeper. They can help you keep on top of your business expenses throughout the year so that everything is clear when tax time rolls around.

By helping you claim everything you are entitled to, a good Bookkeeper can help minimise your tax costs and ensure you have accurate financial records. This not only ensures your expenses are correctly claimed, but it can also save you from costly fines and penalties as a result of incorrect claims.

If you don’t already have a Bookkeeper for your business, now is the time to get one! And we have the perfect place for you to look. Here at ICNZB (Institute of Certified NZ Bookkeepers) we have a directory of the best Bookkeepers in the country so that you can find the perfect fit for your business.

Find your new Bookkeeper now.