A question often asked by independent contractors and small business owners.
Independent contractors can claim a number of expenses. However, they have to be legitimate business expenses. These are expenses that are necessary for your business to derive income. Basically anything that is in line with the nature of your business and has helped you to create your income will be claimable.
We have compiled a list of the expenses we get asked about most often;
Home Office expenses
If you are using an office space in your home to regularly complete work (such as writing up invoices, contracts, supply lists…) you will be able to claim a percentage of your home expenses. The percentage is based on the size of the area used compared to the house, say 10% for example. This means you can claim 10% of the house rent, mortgage interest and other utilities – get in touch with us if you would like to see the spreadsheet we use.
When you use your personal car for business travel, you have a choice of deducting a percentage of the actual car expenses or taking the standard mileage rate (per IRD) as a deduction. Deducting a percentage works much like the home office expenses where you will calculate your business use and use this against the actual vehicle expenses.
There are rules around what is classified as business travel. For example, travelling to and from work (if you don’t have a separate office, “work” could be classified as your storage unit etc) is not classed as business use however travelling from home to a site is. Travelling to meet a client or deliver products are also classified as business travel.
All the costs associated with travelling outside of your city are also deductible if they are business related:
- Flights, car hire and other transport expenses
The reason for the trip is important in classifying whether it is business related. If you are going to visit relatives but also do some work on the side – this would not count (although it’s a blurred line and a portion could be).
You can only claim meal costs while you are working at a remote site away from your normal place of work, or when staying away from home overnight for work.
An entertainment expense is business related if you spent the money to help your business earn income. Examples could be entertaining existing or potential clients, or holding an event for your employees to improve engagement (a party or team building activity).
Some entertainment is 100% deductible while others are only 50%, the general rule for deciding is whether or not there is a private element (usually entertainment away from work or out of the usual work hours has a private element.)
Examples of 100% deductible entertainment can include:
- Food and drink while travelling on business
- Food and drink provided at a conference
- Light refreshments like morning tea are also 100% deductible
- Offshore entertainment
Basically everything else will only be 50% deductible.
People never like our answer when we tell them the rules around clothing – If the clothes you wear for work would make up part of your ‘every day’ wardrobe, they cannot be claimed, even if you are not likely to be wearing them outside of work.
Basically the only way clothing can be claimed as a business expense is if it is essential to carry out your work such as protective clothing and hi-vis gear. Branded uniforms can also be classed as an allowable expense.
This list of deductible business expenses could go on and on, if you would like more information feel free to give us a call.