Most businesses incur expenses when generating income. Most of these expenses can be deducted from the income to arrive at the net profit (also known as net income or taxable income).
It is on this net profit that you pay Income Tax. Be sure to deduct your business expenses from your income in the tax year you incurred the expense.
You will need to keep records of all your expenses for Income Tax purposes. The IRD require you to keep all your business records for at least 7 years. This includes any purchase for expenses that you claim a deduction for in your business.
Some commonly claimed expenses are:
- Advertising/Marketing – eg Print, digital media
- Bank Charges – eg monthly account fees, transaction charges
- Cleaning
- Consultancy fees – eg Accountancy fees
- Electricity
- Entertainment expenses for entertaining staff and clients – some expenses are 100% deductible while others are 50% deductible. Some examples of 100% deductible entertainment expenses are: food and drink while travelling on business, promotions open to the public and at certain conferences
- Freight and Courier
- Insurance
- Interest – the principal portion of loan repayments is not deductible only the interest portion
- Legal Fees
- Motor vehicle – keep a logbook to record how much the motor vehicle is used for business, and how much for non-business purposes. (See motor vehicle section for more detail)
- Office Supplies
- Rent
- Repairs and Maintenance (see fixed asset section for more detail)
- Staff Training
- Subscriptions – eg work related journals and magazines, memberships to professional associations, memberships that enable you to derive your business income or to assist you in your line of business. Your TaxSnaps subscription qualifies as a deductible expense!
- Telephone and Internet
- Travel and Accommodation – record details of your business travel, keep invoices and tickets. Eg car hire, air, bus & taxi fares, accommodation, meals & incidentals
- Wages and Contractors
- Computer Equipment – subject to certain rules, assets costing $1000 or less can be fully expensed in the year of purchase or creation (see fixed asset section for more detail)
- Furniture and Fittings – subject to certain rules, assets costing $1000 or less can be fully expensed in the year of purchase or creation (see fixed asset section for more detail)
- Plant and Equipment – subject to certain rules, assets costing $1000 or less can be fully expensed in the year of purchase or creation (see fixed asset section for more detail)
- Depreciation (see fixed asset section for more detail)
- Use of your home for business – no deduction is permitted for any private or domestic expenditure. However you may claim a proportion of your rates, house insurance, power, and mortgage interest, based on the proportion of the area in your home that is set aside for business
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