There are plenty of upsides that come with running a business. When it comes to taxes, one of the biggest perks is being able to reduce your taxable income, and therefore your tax bill by deducting legitimate business expenses through SARS registration.
Whether you’re operating as a sole proprietor or a company in South Africa, every cost you incur that directly relates to running your business could be tax-deductible.
But how do tax-deductible business expenses work and what types of costs should you be tracking? Here’s what you need to know:
· Submit all medical expenses to your medical aid even if they don’t pay the expense. The amount will be put on your certificate and can be considered for credits when your return is done.
· Make sure to keep proof of payments for any medical expenses claimed as the lax laws work on when an amount is paid for medical and not incurred as it works with business.
· When submitting your return to SARS and claiming expenses not paid by the medical aid, draft a summary of these expenses and submit this to SARS with the 10 most substantial invoices and a statement that you can provide other medical expenses upon request.
· Keep all invoices for expenses against your income
· Make sure the invoices are correct such as a tax invoice and not a quote
· Keep business expenses separate from private expenses on the slips
· Get a letter stating that you are working from home if this is the case (Or that you are working mostly from home)
· Make sure the claims are correct per the income tax act as any correction by SARS can mean an understatement penalty
· Claim entertainment expenses but avoid weekends or days where it is a private use expense.
· Add other costs such as petrol, repairs, insurance and additional costs directly attributable to the car
· Submit only the essential documents during the first stage of audit and wait for SARS to get request further documents
· Do not confuse SARS by submitting all the documents as this could lead to further questions and your case being disallowed (Very important)
· If you used a tax practitioner, please remember to claim the full cost of their fees
· Complete your return in accordance with your logbook – do not submit the return and then quickly design a logbook if there is an audit. Therefore, keep a day to day record of your travelling.
· If you are not sure of anything on your logbook, please get professional advice and pay those fees rather than sit with an entire claim being disallowed and getting a penalty. Professional tax assistance is cheaper.
· Make sure that the value of the car matches the purchase agreement
· Do not claim for a car before you have the car. If the purchase agreement states you had it from 1 April, don’t claim from March as this would be impossible and could lead to your case being disallowed and a penalty for negligent submission.
· Submit your purchase agreement with the logbook as a standard
· Do not delay in submitting documents to SARS. The return should be filed with the records, so if there is an audit, you should be able to submit the documents immediately.
· Don’t get irritated with SARS, always deal with them professionally, but in writing and not verbally as then there is a record of discussion with them.
Home office expenses
· Make sure you have all the correct documents to claim for a home office before putting in such a claim
· When submitting documents to SARS for this type of audit, make sure that there is a summary of expenses
· Have each report under an audit file for the costs claimed as SARS may ask these and failure to supply can lead to an understatement penalty
· Make sure that your home office shows that you are using a specific area exclusively for business as well as regularly
· Don’t have any personal item in your home office as this will mean that you are not using the space solely for business
· Make sure you don’t have to walk through your office area as then your home office is not used exclusively for business and SARS may correctly disallow your entire claim and issue an understatement penalty
· Make sure that all sources of income are disclosed to SARS and that there is a workings table to arrive at the totals submitted to SARS
· Use a tax practitioner as the fees paid to tax practitioners may be and probably will be deductible against your taxable interest.
· Make sure you are a registered as a provisional taxpayer
· Submit your provisional returns each August and each February and don’t be late
· Pay your taxes before the deadline, which is the last working day of August and the last working day of February each year. Getting this wrong could mean a penalty
Dealing with audits
· When submitting a return and there is an audit, submit the supporting documents without delay
· Make sure that all the relevant documents are submitted the first time
· Avoid re-filing the return and if this is required, consider seeking professional assistance
· Allow SARS their 30 working days before following up on the audit
· Admit any mistake made on the return as SARS can impose a lower penalty when there is cooperation
· Keep all documents in an audit file for at least five years.
If SARS has deducted some expenses, you consider being business and not personal expenses. You may want to object the claim.
· Make sure that you have proper grounds and explain the grounds in detail before submitting the objection and allow 60 working days before following up on the complaint.
· Make sure that once a result is obtained and this is not favourable, that an appeal is perused soonest
· Should your objection be made invalid due to the high turnaround time, re-submit your objection with more detail on the reason for the late objection being submitted.
· Make a summary of income and expenses based on the documents you have
· Deduct costs incurred to generate the rental income. This includes agent fees, levies, rates and taxes, etc
· Get professional advice before doing anything to the property or the purchase of a new one or additions to the property.
· Declare income that you are entitled to but have not received as this is required per section 1 of the income tax act
If you are still unsure about what to save on and how to prepare your files, feel free to send me a firstname.lastname@example.org