Business expenses are the costs you have incurred in the course of running your business. Only allowable business expenses may be deducted against your income to reduce the amount of tax payable. Show
At a GlanceAllowable Business ExpensesAllowable business expenses are expenses that you can claim as deduction against your business revenue to reduce the amount of tax you have to pay. Illustration: How Allowable Business Expenses Reduce Taxes PayableBusiness Revenue$80,000 Business Expenses Total Business Expenses = $15,000 Income Subject to Tax $80,000 - $5,000 = $75,000 (Business Revenue minus Allowable Business Expenses) General Rules for Claiming Allowable Business Expenses
Disallowable Business ExpensesDisallowable business expenses are expenses that cannot be deducted against business income. They may be disallowed under the Income Tax Act or because, generally, they are not incurred wholly and exclusively to generate business income. Examples of Allowable and Disallowable Business ExpensesAllowable Business ExpensesDisallowable Business ExpensesEmployee / Staff Costs Employee / Staff Costs
Finance and Professional Costs
Capital Expenses Running Costs Private Expenses
Private Hire Cars/Private Car Expenses Expenses incurred directly or in the form of reimbursement on using private hire cars or private cars (E, Q or S-plate cars) such as repair, maintenance, parking fees, petrol costs are disallowable. These expenses are not deductible even if the private cars were used for business purposes. With effect from YA2019, private-hire car drivers can claim car-related expenses. SchemesOther Allowable Business Expenses Mosque building fund, zakat, fitrah or other religious dues authorised by law (These should be claimed as trade expenses and not donations.) Remuneration Paid to Related Parties (e.g. spouse and siblings)
Other Disallowable Expenses
COE for motor vehiclesNo capital allowance is to be given on private cars (S-plated cars), RU-plated cars and company cars (Q-plated or S-plated cars), except where the cars are registered as "private hire cars"/"cars for instructional purpose" and are hired out or used for providing driving instruction in the course of the company's business. Apart from private cars (S-plated cars), RU-plated cars and company cars (Q-plated or S-plated cars), costs of other motor vehicles such as vans, lorries and motor cycles acquired for business use would qualify for capital allowances under Section 19 or 19A of the Income Tax Act. Expenditure incurred on obtaining a Certificate of Entitlement (COE) to acquire a motor vehicle is part of the cost of the motor vehicle. If the motor vehicle qualifies for capital allowance, the cost of obtaining the COE may be included when claiming capital allowance on the motor vehicle. In addition, the amount paid by a registered owner of an existing vehicle upon renewal of the COE to enable the continued operation of the vehicle will be regarded as an additional cost of the vehicle for the purposes of claiming allowances under Section 19 or 19A. However, for expenditure incurred to obtain a COE which is not subsequently used to acquire a vehicle, the expenditure incurred will not be granted capital allowance. Renovation or Refurbishment Works Expenditure (Section 14N)To help businesses particularly small and medium enterprises reduce their business costs, qualifying expenditure incurred on or after 16 Feb 2008 under Section 14N of the Income Tax Act will be tax deductible provided the expenditure on repairs or replacements do not affect the structure of the premises. Qualifying ExpenditureExampleThe following items qualify for Section 14N deduction provided they do not affect the structure of the business premises: Deductions are not allowed on expenditure relating to: Expenditure Cap on Qualifying CostsEffective YA 2013, the amount of R&R costs that qualify for tax deduction as a business expense is capped at $300,000 for every relevant three-year period, starting from the year in which the R&R costs are incurred. Prior to YA 2013, the cap was $150,000 for every relevant three-year period. The deduction must be claimed by the business over three consecutive YAs starting from the year in which the R&R costs are incurred, i.e 1/3 of the R&R expenditure can be claimed in each of the three YAs. For partnerships, the expenditure cap of $150,000 will be applied at the partnership level. Tax deduction will be allowed up to the expenditure cap over the three-year period. ExampleTotal Qualifying R&R Expenditure Incurred $50,000 ($150,000 / 3 years) $60,000 ($50,000 + $10,000 [$30,000/3]) $100,000 ($50,000 + $10,000 + $40,000 [120,000 / 3 years]) * In YA 2013, the amount of qualifying R&R expenditure allowed is $30,000 ( as the combined qualifying R&R cost for YA 2012 and YA 2013 is still within the expenditure cap of $300,000 for the relevant three-year period). Claiming Section 14N DeductionExampleTo claim Section 14N deduction, include the amount to be claimed under "Allowable Business Expenses" in your 4-line statement in Form B (Self-Employed) or Form P (Partnership), starting from the YA relating to the basis period in which the R&R costs are first incurred. Supporting Documents: For more details, please refer to Tax Deduction For Expenses Incurred on Renovation or Refurbishment Works Done to Business Premises (PDF, 175KB). To provide cash flow relief and encourage businesses to refit their business premises, businesses will be allowed the option to claim R&R deduction in one year for qualifying expenditure incurred on R&R for the YA 2021. The cap of $300,000 for every relevant three-year period, starting from the year in which the R&R costs are incurred, will still apply. The option is irrevocable. New! To continue providing support to businesses, the option to claim R&R deduction in one YA will be extended to qualifying expenditure incurred on R&R for the YA 2022, with the same parameters as YA 2021. Research & Development (R&D) ExpenditureWho Can Claim R&D Tax BenefitsOnly taxpayers who are the beneficiaries of the R&D activities can claim R&D deductions on the R&D expenditure incurred. A beneficiary of R&D activities:
Taxpayers in the trade or business of providing R&D services will generally not be able to claim the R&D tax benefits, unless the R&D is performed on its own account such that it is the beneficiary of the R&D activities. Please refer to Research and Development Expenditure for more information on the R&D tax benefits. Claiming R&D Tax BenefitsTo claim R&D deduction, you must include the amount to be claimed under " Allowable Business Expenses " in your 4-line statement in Form B (Self-Employed) or Form P (Partnership). Businesses with Revenue > $500,000If your revenue is $500,000 or more, a breakdown of the R&D expenditure is to be submitted together with the certified statement of accounts and tax computation. Tax DeductionsYou may be able to claim tax deductions on any of the following provided you satisfy the qualifying conditions: What is the maximum allowable deduction for a home office?For 2022, the prescribed rate is $5 per square foot with a maximum of 300 square feet. If the office measures 150 square feet, for example, then the deduction would be $750 (150 x $5). The space must still be dedicated to business activities.
What deductions can I claim without receipts?What does the IRS allow you to deduct (or “write off”) without receipts?. Self-employment taxes. ... . Home office expenses. ... . Self-employed health insurance premiums. ... . Self-employed retirement plan contributions. ... . Vehicle expenses. ... . Cell phone expenses.. What is the maximum deduction for small business?Under the tax law, most small businesses (sole proprietorships, LLCs, S corporations and partnerships) can deduct 20% of their income on their taxes. Woo-hoo! Got small business tax questions? RamseyTrusted tax pros are an extension of your business.
What tax deductions can I claim?10 Popular Tax Deductions. Standard Deduction.. IRA contributions deduction.. Health savings account (HSA) deduction.. State and local taxes deduction.. Medical expenses deduction.. Home office deduction.. Student loan interest deduction.. Mortgage interest deduction.. |