It costs a lot of money to run a business. Thankfully, many of your organisation’s essential expenses can be deducted from your tax returns. Deductions lower your tax liability and can help keep your books in the black.
What can be deducted on your tax returns? This is the million dollar question.
Businesses can deduct a variety of regular business costs. This includes many of the vendors you use to keep your operation running. Electricity, land taxes, and even your bookkeeping costs can be claimed when you lodge your year-end taxes.
Can you deduct bookkeeping fees from your taxes?
Are bookkeeping fees tax deductible? The short answer is yes. The Australian Taxation Office (ATO) allows you to deduct certain bookkeeping fees from business taxes. If you hire an outside vendor to handle your tax preparation and reporting, the expenses are eligible for deduction as long as they meet the three golden rules of the ATO.
All business deductions must meet the following criteria:
- The expense must have been related to your business. If you use a bookkeeper for personal expenses, the fees can’t be deducted on your taxes.
- Expenses that are both business and personal must be appropriately divided. In other words: If you use the same bookkeeper for both business and personal use, you can only deduct the portion of the fees that relate to your business accounting.
- You must provide supporting documents. Be prepared to show the ATO exactly what you paid in bookkeeping fees related to lodging your taxes.
Which bookkeeping fees are eligible for deductions?
The Australian government specifically states: “You can claim a deduction for expenses you incur in managing your own tax affairs, such as the cost to lodge through a registered agent.” The fees and expenses that you might incur include anything you spend on tax reference materials, tax return preparation courses, tax agent costs for lodging your return, costs related to tax advice from a registered agent, tax return software, and any fees associated with negotiating your tax affairs with the government.
You can also deduct any travel expenses associated with getting your taxes done. Your tax interest charges are also deductible, as are credit and debit card fees you incur when you pay taxes using a card.
Australia also allows you to deduct some salary and wages from your business taxes. In many cases, the wages paid to a contractor (like a regular bookkeeper) who completes a service are tax deductible. Payroll tax considerations and deduction laws may depend on the state where your business is located.
How much do bookkeeping services cost?
Bookkeeping fees depend on a variety of factors. These can include:
- The experience of your bookkeeper. A bookkeeper who is well versed in your particular industry will likely charge more than someone who is just starting out.
- The needs of your organisation. If you want complex reporting and insights, you can expect to pay more for a bookkeeper than if you use outside help for payroll and basic record keeping.
- The nature of your relationship with the bookkeeper. If you hire someone full-time, you are responsible for annual and sick leave and superannuation. These costs add up. Contractors may charge more per hour, but you are not responsible for benefits.
- Where you live. Some states have higher average per-hour rates for bookkeepers than others. If you’re sourcing someone from a major city, you may pay them more.
All of this being said, there are some average figures to keep in mind. According to the Institute of Certified Bookkeepers, a contract bookkeeper in Australia usually charges at least $55 per hour to make the equivalent of a salary plus benefits.
Not all bookkeepers charge per hour. You may also choose to pay per project or service. With Visory, for instance, you are charged based on the services and outcomes you require. This allows you to enjoy consistent charges and a personalised bill. You can learn more about Visory’s pricing if you prefer project pricing versus hourly costs.
What exactly is a tax deduction?
A tax deduction reduces your business’ taxable income. In turn, this mitigates your tax liability to the government. More specifically, deductions are business expenses you incurred during the tax year that can be applied against your tax burden. By deducting things like travel to see your tax accountant or bookkeeper’s fees from your total income, you can reduce your tax bill at the end of the year.
You can deduct many business operating expenses related to payroll, retirement funds, and accounting software expenses. Be sure to comply with requirements related to deductions before you try to apply them. For instance, to deduct regular employee wages, you typically have to comply with PAYGW (pay as you go withholding) and reporting. If you don’t meet the requirements, you will end up paying more than you expected, including potential penalties.
How bookkeeping can help you stay on top of deductions
Asking “Are bookkeeping fees tax deductible?” is just the tip of the iceberg. You should also ask “How can my bookkeeper maximise all my deductions?” Your bookkeeper can not only identify the deductions that mitigate their own fees, but also seek out creative ways to earn credits and deductions for other expenses.
A good bookkeeper can:
- Stay on top of changing tax laws. New deductions could save you thousands but only if your bookkeeper knows which new deductions and credits are available for businesses this year.
- File on time. You can lose a lot of money in penalties and fees for filing late or improperly. An experienced bookkeeper is working on taxes well in advance so they are never lodged late.
- Have all necessary records on hand. You need proof such as receipts and invoices to get approved for many deductions. A bookkeeper will collect these throughout the year and have them organised come tax time.
Are you ready to get some help with taxes? Visory can do that and so much more. Connect with us about bookkeeping tax deductions, payroll help, and other financial services to see how you can minimise your tax liability next year.