Work from home & needing to claim your expenses?

Expenses are the costs you incur in the day-to-day running of your business. At tax time, your total profit (the amount you need to pay tax on) is your taxable income minus the expenses you can claim — so the more you can claim, the less tax you have to pay.

Business expenses are:

  • Day-to-day revenue expenses for running your business, eg advertising or wages.
  • Assets you buy, eg machinery, computers or tools, which are called capital expenses. Note: items that cost $500 or more must usually be depreciated.

Generally, you claim your revenue expenses in the year you incur them, and you depreciate capital expenses over time.

GST

If you’re registered for GST, your income tax return will exclude GST on your income and expenses — GST is accounted for in your GST return.If you’re not registered for GST, your income tax return will include GST on your expenses only.

All self-employed people, including contractors and sole traders, can claim expenses against their income.

What you can claim for.

Business expenses can include:

  • vehicle expenses, transport costs and travel for business purposes
  • rent paid on business premises
  • depreciation on items like computers and office furniture
  • interest on borrowing money for the business
  • some insurance premiums
  • work-related journals and magazines
  • membership of professional associations
  • home office expenses
  • work-related mobile phones and phone bills
  • stationery
  • work uniforms
  • tax agent’s fees.

How much can you claim?

You can’t claim the whole cost of all items, even those only for business use. Some things you can only claim half for, eg some entertainment expenses. You can only claim 100% of the cost for an expense that’s entirely for business use.If you have an expense that’s partly for your business and partly for your private use, you can claim the proportion that relates to your business.

Example:
If you spend half the time driving a vehicle to deliver goods and the other half for your own reasons, you can claim 50% of the travel costs for your business.For some expenses, like business entertainment, eg client meals and staff functions, you can only claim half.

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Keep track of receipts and invoices by stapling them to your monthly bank statement before filing it.

Working from home.

If you use an area of your home for your business, eg your study or garage, you can claim a portion of the household expenses, eg:

  • rates
  • power
  • house and contents insurance
  • mortgage interest if you own the home
  • rent if you are renting the home.

You must keep invoices for these expenses.

How it works

If your home is 100 square metres and your working space is 10 square metres — 10% of the total area — you can claim 10% of expenses that are not solely for your business, eg your home phone line.

If you aren’t using a separate area of your home for business, you’ll need to take into account how much time you spend on your business and the area used.

If you’re GST registered, the GST content on home office expenses can be claimed as they’re paid — in each GST return period — or at the end of your tax year. Mortgage interest and rent don’t include GST.

Pay for as many of your work related expenses as possible through your business account.

Keeping records.

It’s easy to let filing and paperwork slip. But keeping good records makes it much easier to do your tax return — and will save you time in the long run.Online accounting software services and mobile phone apps can help you record receipts and keep track of expenses.You must keep your tax records for seven years. These must be in English, unless you get approval from Inland Revenue to use another language.

Common pitfalls

Avoid these common pitfalls when claiming expenses:

  • Not separating your business and personal receipts — you need to know which ones to claim against your business tax return and your personal tax return (unless you’re a sole trader).
  • Getting rid of your receipts or invoices too soon — you must keep them for seven years.
  • Not knowing what you can claim for.

Better bookkeeping for everyone.