Creative Entrepreneur’s Guide to Tax Deductions
Let’s be honest, tax law is in no way straight forward and knowing who, what and where you fit in as an entrepreneur is possibly even more daunting. So I would like to break down a few basic principles when it comes to taxes and walk you through what could essentially serve as a checklist you can use to make sure you’re claiming every last cent in business expenses.
LEGALLY YOU = YOUR BUSINESS
Unless you bought or registered a business with CIPC or any other legal form of entity, as entrepreneur you’re probably a sole proprietor. This means you and your business is one and the same thing in SARS’s eyes. Your tax number is therefore the same tax number you’ll use for your business, in fact your personal income tax return is where you will be declaring your business related income and expenses.
DO YOU NEED TO REGISTER WITH SARS?
Unless you have never been employed chances are very good that you have been registered for income tax with SARS. Call the SARS contact centre if you’re not sure 0800 00 7277. Your income tax number is the only tax number you need. The only additional registration you need to do is to register for provisional tax.
Register a SARS E-filing profile and request and submit your tax returns from there. Get a registered tax practitioner involved should you require professional advise and guidance.
What is provisional tax?
Well simply put, when you were earning a salary tax got deducted from your income every month. Now, as a business owner, you don’t need to pay over tax on your income every month, but you do need to do this every 6 months.
Your tax year runs from 01 March of each year to the end of February the next year (that’s why it’s always referred to as 2017/2018). Provisional tax is due by 31 August based on the taxable income you made in the first six months of your tax year, and again by the end of February based on the taxable profit for the full financial year (less the payment you made in August).
WHICH EXPENSES CAN YOU CLAIM?
So, here follows a list of business expenses you can claim as a creative entrepreneur. It should serve as a good guideline to make you aware of everything that is deducible for tax:
Graphic design fees
Web developer fees
Other freelance contractors
Banking & other fees:
Monthly bank account fees
All other transaction fees
Software & subscription fees:
Social media scheduling system fees
Adobe and Canva
Email marketing fees
Accounting system (Sage, Xero or other)
Client relationship manager
Classes & seminars
Conventions & conferences
Mileage to these events
Pens, paper, notebooks & planners
Thank you cards
Internet & Telephone:
WiFi & 3G Dongle
Business Related Travel:
Client gifts & entertainment
All the goodies that you buy in order to sell or the cost of making items yourself
It is important to note that you need to be able to provide an invoice or slip for the expenses you are claiming should SARS ask to see supporting evidence to your claim. So get a filing system in place and make sure you’re keeping these slips for at least 5 years (SARS regulations). Where possible, get the supplier to address the invoice to your business as an added control measure.
Also, this list refers to expenses. Purchases related to capital expenditure – don’t lose me here, hang on – buying a car, a laptop, a camera, furniture etc (generally capital expenditure over R7,000 in price) can not be claimed in full on the date that you purchased them, they are written off over a period of years. So the tax deduction will be spread over 3 or 5 years, depending on the period suggested by SARS. To illustrate this, if you go out and buy a printer cartridge today, that is not capital in nature, it is a normal business expense, so the full price you pay is deductible in that tax year. If you went and bought a new laptop today for say R15,000, this will be brought into your books as an asset on your balance sheet (does not go through your income statement which means it does not affect your profit). This is then depreciated over a period of time that SARS recommends, for instance a laptop’s write-off period is 3 years. This is pro-rated according to the number of months left in the financial year since the purchase date.
Please also note that being a sole proprietor often means your business related expenses overlap with your personal expenses. You need to either use itemized billing to compare your personal vs business related usage or a fair percentage that you apply to business related claims that you can substantiate in some way.
WORK FROM HOME DEDUCTIONS:
You can claim all your business expenses but there are specific requirements for claiming a deduction for occupying a portion of your home for the purposes of trade. This means that a portion of your home must be specifically equipped to accommodate and support your specific trade and must be used regularly and exclusively to run the business. Your duties must also be mainly performed in that portion of your home.
- Rent on the premises
- Interest on the home loan (note INTEREST, not the capital portion – your annual home loan statement will identify the split)
- The cost of repairs to your home office specifically
- Electricity, water, rates and taxes
- Cleaning costs
When you claim a deduction for these expenses, they need to be in proportion to the floor area of your home office against the total floor area of your home. Keep an accurate record of all expenses, as SARS may want to check the information.
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KEEPING RECORD OF ALL THESE TRANSACTIONS:
You need to keep a record of all of these transactions you’re going to submit to SARS. Whether you choose to do so using a simple Excel format or choosing accounting software to do this is up to you, but you need to get a process in place.
Online Accounting Software:
It is easier than ever to run your own daily accounts. There are a couple of options:
If you have a very tight budget, I suggest signing up with Wave Apps (www.waveapps.com). This option is free and still has all the basic functions you need.
Then there is Sage One Accounting (www.accounting.sageone.co.za). This costs R225 per month.
Lastly, my favourite, is Xero Accounting (www.xero.com) which costs $30 a month. This is my preferred choice especially for creatives that have little accounting knowledge. The training videos are of the highest quality and you’ll be able to teach yourself with their help in no time.
Register a profile, setup your details in the accounts, and add your logo. Start processing your customer invoices in there.
That is a mouth full. I do hope your understanding of what is involved in taxes for entrepreneurs is a little less of a mystery now.
All the best with your business journey & don’t hesitate to book a meeting or call with me should you wish to discuss your tax portfolio. Small businesses and particularly creative entrepreneurs are my absolute favourite.