A steady cash flow is vital for a small business; imbalances can lead to the breakdown and even failure of your business. Expenses are an incredibly important element of your cash flow. Dealing with your business expenses properly can have a significant impact on your bottom line. As a business owner, you need to put in the work to further your understanding of business expenses. So read on to find out more.
This article will go over some different forms of business expenses, and what kinds of things can be deducted from your tax returns. But first, you need to start thinking about the tools you want to use to organize yourself. After all, there is a lot to remember. Storing digital versions of your records allows you to keep them all together in one place, making them easier to access, which in turn improves efficiency when it comes to checking the accounts.
The best way to get on top of your money management efforts is to look into software solutions. For example, Payhawk has a number of systems that integrate with existing POS systems to address your business’s financial needs. They have business credit cards, expense management, reimbursement, invoice management, and bill payments. Using a software system like this provides you with an overview of where your business’s money is going. In addition, they can provide you with a comprehensive view of your business’s finances. The records produced can also become integral when the time comes to submit your taxes.
Small Business Expenses Defined
Some business owners or employees aren’t claiming business expenses simply because they don’t have a good understanding of what counts. A business expense is essentially any cost incurred through the running of the business. These expenses should then be subtracted from a business’s revenue in order to give you the total taxable sum.
To put it simply, small business expenses are costs that you don’t have to pay tax on. They are often known as deductibles because they should be deducted before your business is taxed. Therefore, by keeping proper records, you are likely to find that your business has more money – unless it is a fledgling business that often operates at a loss as it finds its feet.
Deductibles
A business cost is known as a deductible if it can be deducted from your taxes, as mentioned above. These expenses are sometimes referred to as a ‘write-off’ but the two are a little different, but the terms are often used interchangeably. This means that the expense needs to be totally necessary to the business and incurred as a result of the day-to-day running of said business. There may be exceptions in rare cases to cover work from home programs or costs that impact the business outside of the office.
Non-Deductibles
The truth is that not every expense is going to be tax-free. Any expense that doesn’t directly relate back to the operation of the business is likely to not be eligible for deduction and therefore has to be included in your business taxes. This means things like entertaining clients or personal expenses usually.
Simplified Expenses
This really only tends to apply to those who are self-employed. You can usually claim a flat fee – a predetermined amount to be deducted from your expenses to make calculating your taxes easier. You can claim for things like vehicles, your home and even personal belongings that you use for your business.
Examples of Expenses
As a small business, you often have the same entitlements as big businesses in terms of what types of things you can make claims for, given, of course, that you can prove their validity. However, the specific entitlements can vary depending on where your business is located, so be sure to check if you aren’t sure.
The expenses themselves may differ depending on the type of business you have and the industry in which you operate. That being said, they tend to be things like utilities, agency fees, business travel expenses, items for the workplace, and personal development. Organisation is important; keep receipts and invoices for everything that could be classed as a business expense to ensure that you have everything you need to make a claim. To this end, automation can become incredibly important.
In Summary
The old adage is true: you have to spend money to make money. Running a business can be costly, between the utility bills, supplies, and payroll demands. Improper handling of your business’s expenses can be incredibly detrimental to the future of your business. As outlined above, there are several different forms of business expense, some of which can be tax deducted which can mean more money in your bottom line. Think about implementing better money management techniques and organizational tools to improve your business’s profitability.
