Tax Time Guide for New Law Firms – Things to Consider That Might Not Be Claimable
While hitting the business building learning curve head-on can be a daunting experience, your biggest challenge is often that initial year of establishment.
Smooth sailing may have begun, yet your first tax return might be the starting point for rough seas as you drift into hard-to-navigate financial obligations.
Trying to figure out what's tax deductible is a complication all on its own, with many new businesses tackling tax time with a trial-and-error style approach – But now you’ll have a better idea on what might be possible to claim!
Here are some suggestive reminders you may like to consider prior to seeking a tax agent’s advice.
THINGS YOU LIKELY AREN’T ABLE TO CLAIM
1. General business attire
Going out to buy a brand new suit may seem tempting however it's important to keep in mind that general business wear is not usually tax deductible.
Handbags & briefcases used for the sole purpose of carrying or transporting work items or tools may be eligible for a deduction.
When it comes to business attire whether it's claimable or not depends more upon its use rather than what the item is itself.
2. Club memberships and other attendances
Networking is a significant part of any business's success. This oftentimes means certain memberships are required to develop relationships partnerships to help a law practice grow.
Regardless of whether you play nine holes every week or attend a variety of dinners or social business gatherings, any expenses related to these events might be solely your responsibility.
3. Travel between your home and practice
Weather your firm is just around the corner from your home or is a 1.5 hour commute away, your fuel, food or public transport fees are generally on you.
Exemptions may apply underwear circumstances where work-related equipment requires transportation.
4. Gifts to clients
Showing your appreciation for a client relationship is an amazing gesture, however you shouldn’t always assume this will be a tax deductible expense, but rather viewed as a personal voluntary expense.
Purchasing something expensive as a token of gratitude or to impress the client should be thought long and hard about.
THINGS YOU SHOULD REMEMBER TO DISCUSS WITH YOUR TAX AGENT
1. Compulsory Uniforms
While your general business attire is not usually a tax deduction, if you are required to wear a uniform of any type, this might be something to consider mentioning to your Tax Agent.
You should also remind yourself to ask your Tax Agent about cleaning and repair costs.
2. Your yearly practising certificate
With your annual practising certificate expenses being a considerable sum, this is an expense you don’t want to forget about.
It's easy to overlook or forget about one-time yearly expenses so make sure records are kept of these as soon as they're paid. You don't want to be leaving more of your hard-earned with the government than need be.
3. Educational expenses
Training, education and other seminars related to your law work and personal development within the industry should be mostly deductible expenses. Fees for most online courses should also be included.
Not only should you probably keep the receipts for these but also record dates, times and location details for all these as well.
This information will primarily be for your reference, but at the same time it's additional evidence if you've undertaken numerous courses throughout the year that may raise questions.
4. Working-from-home expenses
Operating from home incurs a number of costs which you’ll likely be allowed to claim after 1st July.
Calculate a rough estimate for all your expenses for the entire year by multiplying every hour you worked at home by 80 cents. This is the latest suggested calculation from the government and is a highly accurate measurement of your true at-home costs.
This measurement should include significant expenses like air conditioning, electricity and internet so you won't have to sift through all your household bills and make partial calculations.
There are other effective ways of calculating your home office expenses that might be more applicable for your business/personal tax affairs. I suggest you discuss the best option for your circumstances with your Tax Agent.
5. Court attendance or client related travel
Travel expenses relating to going to court for the day or liaising with clients could also be deductible.
Try to keep these trips separate as multitasking while you're driving around or taking public transport means you'll need to partialise your expenses at tax time. This may also include parking costs - those $5 parking tickets and train fares soon start to add up.
6. Supreme Court Library fees
Fees related to the Supreme Court Library might also be worth jotting down to ask your Tax Agent about. Stationery and other office supplies related to law research work might also be deductible.
7. Away from home purchases
If you need to travel for court attendances or to see clients, you might find these costs adding up. Expenses such as accommodation and meals should be claimable while you're out of the home or office and working.
These tend to be smaller costs that are often ill-managed due to the frequency in small value. However those little purchases like lunch stops or Uber rides can leave a serious dent on the bank account after multiple days away making it crucial to keep it organised tally of every card and cash purchase.
While the ideas mentioned above are a great starting point, its recommended that you consult a registered Tax Agent for professional advice.
Looking for more bookkeeping and accounting tips? Visit the Ironbark Industries Bookkeeping blog and explore our latest articles including Finding the Right Bookkeeper for Your Small Law Firm - Things to consider