Of all the DM’s I receive, the most often asked ones boil down to profit and loss. What can be claimed, where it should be claimed and how to make business expenses work for you. It can be super confusing so today I’m answering a couple of FAQ’s on the subject to help you make informed financial decisions about your common profit & loss questions!
Q: I’m a Sole trader, can I claim money I pay myself as a wages expense?
A: I get this one all the time and it’s a fair question. As a sole trader the simple answer is no. You are the business – there is no seperate entity and you can’t pay you – you’re the same person! You can always take money out of the biz bank account to your personal bank accout and splash that cash on a new *plant* insert your fave thing here! Which I actually encouarge you to do! Work out a percentage of your sales, a fixed amount per week, what ever works best for you.
But when you enter it in your software – it’s coded to Owner Drawings. Allllll the profit of the biz is your personal income, whether you leave it in the biz bank account or move it out.
So long as you don’t take it all out and remember to save for taxes and rainy days 😉
Q: I work from home, can I claim my phone/internet/electricity etc?
A: Yes & no! Working from home sure has it’s perks, but it doesn’t mean you can claim all your home expenses as biz expenses – wouldn’t that be awesome if you could?!
Phone & internet is a relatively easy one. You need to work out your business percentage usage (using a log) and then you can claim that portion through the biz, either splitting it in your accounting software, or keeping a record of them all and claiming when you do your tax return. Or if you have a totally seperate phone (one for work and one for personal) you can claim it, so long as there’s no personal use.
Your electricity and other ‘home office’ expenses, well for that one keep a record and claim with your tax agent when doing your return. It’s just the best way because your tax agent is all over it, that’s their jam!
Q: I’m just starting out, can I claim all my startup expenses?
A: Absolutely! You don’t need to wait until you start selling before you can include the expenses you paid up front. Like new website costs. ASIC. Facebook Ads. Packaging items for your gorgeous new products. Legal fees.
Just keep copies of all your invoices/receipts and include them when chatting with your bookkeper or tax agent. Here’s my blog on why you should invest in accounting software to keep track of these expenses – and why yes, the cost of the software is a claimable expense as well!
Just remember, you always need to have that invoice copy as proof else you can’t claim it, so don’t lose them or forget to get one.
Sometimes, if you were at a loss for that initial startup year, you can carry the loss forward to the next financial year to reduce any tax you might have to pay the next year! Woo hoo!
Q: My income is showing as $87,000 but my profit is only sitting at $53,000, how can this be?
A: Ahhh the fun of small business life. All of your business expenses like subscriptions, subcontractors, marketing costs and cost of goods are taken out of your profit. Believe it or not, this is handy when it comes to tax. Instead of your taxable income showing $87,000 and attracting a tax bill of $19,000 your taxable income will show as $53,000 (your profit after expenses) with an approximate bill of $8,000.
Just watch those expenses to ensure you aren’t overspending!
These are of course only examples and made up amounts and all general in nature, your Tax Agent will always go through your figures and confirm any deductions and let you know any changes or questions. If unsure, always check with your fave numbers wizard.
Which brings me to mention a saying I just learnt this week ‘If you’ve got a dog, don’t bark’. Not only did it make me laugh out loud, but it was soooo accurate. Don’t know what I’m talking about? Here’s my legal light Tracey’s Insta Reel on it. In short – don’t take accounting advice from your web developer, or your bestie ‘who does her husbands books’. If you’ve got a bookkeeper, BAS Agent or Tax Agent, THAT is who you get your advice from.
If you need help with your profit and loss statements on the regular, I’d love to assist you and also help you out with any other common profit & loss questions.
You can book a free discovery call with me here.
Enjoy allocating that income and those expenses!