For many small business owners and the self-employed, keeping track of expenses can be a daunting task. Receipts pile up, calculations become complex, and tax filing gets scary. This is where simplified expenses come in, offering a seemingly easier route to expense deductions. But while the expense may be simplified, choosing the right approach isn’t as simple as it may seem.
Simplified expenses, also known as flat rate expenses, are predetermined amounts you can deduct from your taxes instead of tracking and claiming individual business costs. As it says in the name, they offer a simplified approach to expense deductions for self-employed individuals and some employees.
The primary advantage of simplified expenses is their ease of use. Instead of meticulously tracking every penny spent on qualifying business costs, you can claim deductions based on predetermined flat rates. This saves you significant time and effort, especially if you have a high volume of small expenses.
Here’s a breakdown of how it works:
- Flat Rates: Simplified expenses use government-approved flat rates for specific categories like working from home, vehicle usage, and meal allowances.
- Reduced Recordkeeping: You don’t need to retain receipts for every expense claimed under the simplified method.
- Faster Tax Filing: The simplified approach streamlines the process of filing your tax return.
It can be an advantageous approach if your business expenses are low and pretty uncomplicated and/or you don’t have the organisational resources to track expenses efficiently.
But, there are drawbacks – most notably, if your actual business expenses consistently exceed the flat rates, you’ll be leaving potential tax savings on the table. And simplified expenses can become complicated – not all business expenses qualify for simplified deductions. You’ll still need to track and claim other expenses traditionally.
It’s not a decision to make on a whim. Talk to us and we’ll walk you through the decision. We’ll help you analyse your past expense records. If your actual costs consistently fall below the flat rates, simplified expenses could benefit you. We can look at your anticipated future growth – if your business grows, your expenses will too. And we can chat about the expenses that aren’t covered by the flat rate process and what you can do to claim that back.
So what you gain in time, you may lose in tax efficiency. Get in touch, and let’s work out whether time or money is the better choice.
