Tax Claim Myths
When we talk about tax claims, we’re simply referring to how you can reduce your taxable income by deducting certain business expenses. Whether you’re a sole trader, a company, or a not-for-profit, tax claims allow you to "claim" specific costs related to running your business.
Let’s clear up a few common misconceptions about what people often think they can claim, but actually can’t.
Clothing: The most common myth heard is that you can claim all business clothing as a business expense. This is not true.
You can claim for branded clothing, mandated uniforms, health & safety equipment such as high-vis jackets and personal protective equipment (PPE) such as steel-capped boots and masks that are required to undertake your work.
However, you can’t claim for business suits, anything that is considered to be for mixed use (i.e. can be worn for non-business purposes) or things like glasses (sun or prescription).
Vehicles: All business vehicles and running costs can be claimed as business expenses!? Not exactly
That is only true if the vehicle is owned by the business and only used for business purposes.
If the vehicle is owned by the business and has some personal use then the business may need to pay Fringe Benefit Tax (FBT) or some private use adjustments may need to be made to any expenses claimed.
Entertainment: Another widespread myth relates to claiming entertainment expenses and these can get a little tricky. Entertainment expenses fall into two categories, 100% deductible or 50% deductible if they have a private element to them. Best practice with entertainment expenses and especially meetings is to record that the meeting is in your business calendar, you record who you are meeting with and what the meeting is about
50% deductible expenses with a private element, are generally food and drink provided at work or those incurred off-site such as corporate boxes, holiday accommodation, recreational boats or gifts of food and drink.
100% deductible expenses are generally for things like food and drink while travelling on business or at conferences, promotional activities and freebies.
If you are unsure, you should consult with your accountant or checkout IRD’s guide here.
Conferences & Holidays: While conferences are valuable for learning and networking, there’s a myth that personal time taken during these trips can be claimed as a business expense.
Keep it clear: Document which days were for business and which were personal to ensure accurate claims.
Many business owners will tack on a day or two for R&R purposes, the myth here is that you can claim these personal R&R days as part of the business expenses for the trip. This is not true, once again record your meetings and or itinerary on your business calendars, similar to what you would do with entertainment expenses and detail what parts are for personal activities.
Assessing these factors can help you determine whether it's time to hire a bookkeeper to ensure your financial health and support your business growth.
By dedicating some time to familiarise yourself with these tools, you can maintain accurate financial records, ensuring a clear picture of your financial health without the need for professional bookkeeping services.
Working with Ako Cash Flow, you will not find traditional bookkeepers but rather a team dedicated to empowering you to become your own bookkeeper. Our approach focuses on providing you with the tools and knowledge necessary to manage your finances confidently and effectively. Through our resources and support, you will learn how to track your income and expenses, understand cash flow management, and make informed financial decisions that align with your goals. We believe that by equipping you with these essential skills, you can take control of your financial journey and foster long-term success in your personal or business finances.
