NAVIGATING YOUR BUSINESS INCOME AND EXPENSES
Understanding what qualifies as income and expenses is crucial for managing your business finances effectively. Here’s a straightforward guide to help you navigate these concepts.
Income
Income includes all the money your business earns through its activities. Contrary to what some entrepreneurs believe, you don’t need a separate company for each income source. Income can come from various activities and doesn’t need to be restricted to a single source.
Expenses
Expenses are a bit more complex. While tax authorities, like SARS, are keen to include all your income sources to increase your tax liability, they are stringent about the expenses you can claim. You can only claim expenses that are incurred in the production of your income.
Although the list of claimable expenses is extensive, here are a few key points to remember:
- Member/Shareholder Paid Expenses: Entrepreneurs can claim expenses they have paid for personally.
- Unpaid Incurred Expenses: You can claim expenses that have been incurred but not yet paid.
- Home Office: If you run an office from home, you can claim a “rental” expense.
Common Misunderstandings
- Member/Shareholder Paid Expenses: Many believe that expenses paid personally cannot be claimed, but they can.
- Unpaid Incurred Expenses: Even if an invoice is unpaid, you can still claim the expense if it was incurred.
- Home Office Expenses: A “rental” expense for a home office can be claimed.
Fines and Penalties
Fines and penalties, which are a form of punishment against the company, must be added back to your profit when calculating your income tax liability. SARS does not allow businesses to gain a tax advantage from fines.
Conclusion
This guide provides a basic understanding of what qualifies as income and expenses. Exceptions exist, so it’s advisable to consult with a qualified advisor when setting up your business.
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