While many people wait until the end of the financial year to work out their taxable income, if you’re a contractor, there’s no need to wait until June 30, 2023. In fact, it pays to deduct your expenses every quarter. That’s because as a contractor, you’re probably paying your taxes in quarterly instalments anyway. So, by claiming your expenses against your income in each quarterly reporting period, you’ll reduce the amount of tax you pay throughout the year. This in turn, will help maintain your cashflow. What is your taxable income? The Australian Taxation Office (ATO) works out your taxable income by calculating your assessable income less tax deductions: Assessable income is the money you earn from doing the work you do. Tax deductions are expenses related to your work (not your private life). Some expenses may be for a mix of work and private use – such as your mobile phone or laptop. If you buy a mobile phone or laptop and only use it for work, you can claim a deduction for the full purchase price. However, if you use them 50% of the time for your business and 50% of the time for private use, you can only claim 50% of the amount as a deduction. Examples of deductible expenses are: Items needed to conduct your work, such as office stationery and relevant publications, in the year you incur them, Motor vehicle expenses, The cost of working from home – lighting, cleaning the area you work in etc, Business travel, Capital expenses, such as machinery and equipment. These are usually expensed over a long period, however temporary full expensing means if you’re eligible you can immediately deduct the full cost of eligible assets purchased between 6 October 2020 and 30 June 2023. To be eligible, you’ll need an aggregated annual turnover of less than $5 billion. Assets can be new or second-hand but must have been installed or ready for use by 30 June. Important to note is that you must hold receipts and invoices for five years to prove the expense and usage. Non-deductibles According to the Australian Taxation Office (ATO), expenses that are not deductible, include: Entertainment expenses, Traffic fines, Private or domestic expenses, such as childcare fees or clothes for your family, The GST component of a purchase if you can claim it as a GST credit on your business activity statement. At the Ayers Group we can help you by managing your contracts, claiming tax deductible expenses associated with your contract, and processing your timesheets for payment. We can also connect you with bookkeepers and advisers who can help you to grow your wealth. Contact your Ayers Group account manager now.