Tax deductions

10 self-employed tax deductions you might be missing

Just like businesses, self-employed people must declare their business income. However, the difference is that the self-employed report this income as part of their personal income tax. If you file your own tax returns, this may mean becoming more familiar with business expenses and tax deductions allowed by IRAS.

If you’re self-employed, here are some business expenses and allowable tax deductions you might miss.

Also Read: 7 Financial Thresholds Small Businesses Should Know for Tax Filing in Singapore

#1 Accounting fees

As freelancers, we tend to do everything ourselves, including filing our own taxes, even when we have complex accounts.

If you’re unfamiliar with the bookkeeping and paperwork involved in filing your own taxes, it can be reassuring to know that bookkeeping fees are tax deductible. So, you may want to hire an accountant to help you with the necessary deposit. A good accountant can not only help you with accounting, but also advise you on financial matters.

#2 Interest on money borrowed for use in business

As part of running a business, it may be necessary to take out a loan and incur interest. Although the loan amount is not tax deductible, the interest incurred is an allowable business expense.

However, the loan must be for business purposes and interest on loans obtained for private purposes is not permitted. Also, only the interest portion of the loan is tax deductible, the repayment of the loan is not.

#3 Hire Purchase Interest and Capital Allocations

The purchase of capital assets is not tax deductible. However, if we elect to use hire purchase to acquire our capital assets, interest on hire purchase is an allowable business expense.

Capital assets also “wear out” and depreciate over time. We may claim capital cost allowances for wear and tear on eligible capital assets purchased and used in trade or business. This can be claimed when the expense is incurred, i.e. when the legal obligation to pay arises, regardless of when the money was actually paid.

Examples of fixed assets include a computer, printer, photocopier, furniture and fixtures. These shall be qualified as “plant and machinery” used in the trade, business or profession of our company.

Low value assets (no more than $5,000) can be written off (i.e. claimed capital cost allowances) within one year, subject to a total claim of $30,000.

#4 Renewal of leases and business licenses

As new business owners know, there are start-up costs associated with starting a business such as fees for applicable business licenses, legal fees, and stamp duty on new leases. While initial fees for a new lease and new business licenses are not tax deductible, renewal fees are allowed as business expenses.

#5 Medical expenses

Unfortunately, medical expenses incurred by the sole proprietor or partner are not tax deductible.

However, if our sole proprietorship or partnership has hired employees, the medical expenses of those employees are tax deductible, up to a limit of 1% of total employee compensation accrued for the year. This cap is increased to 2% if the company sets up a portable medical benefit system (PMBS), a portable medical insurance scheme (TMIS) or provides medical insurance benefits to hospitalized patients in the form of plans wearable medical protective gear.

#6 Transportation cost

Travel costs by public transport in the context of a professional activity are fully admitted as professional expenses. However, travel costs to and from your home are not allowed.

In addition, expenses related to the use of private cars are not allowed. According to IRAS, “expenses incurred directly or in the form of reimbursement while using private rental cars or private cars (E, Q or S-plate cars) such as repairs, maintenance, parking, gas costs are not deductible These expenses are not deductible even if the passenger cars were used for business purposes.

However, drivers of private rental cars are allowed to claim car-related expenses.

Also Read: Guide on How to File Your Income Tax as a Private Hire Car (PHC) Driver or Taxi Driver in Singapore

#7 Cost of car/vehicle

Motor vehicles (e.g. goods/utility vehicles such as pickup trucks, vans, lorries, lorries, and buses) are considered capital property and therefore applicable to capital cost allowances.

However, unless you run a car rental company and hire cars or have a driving instructor, you cannot claim the capital allowance on passenger cars.

According to IRAS, “no depreciation allowance should be allowed on passenger cars (S plate cars), RU plate cars and company cars (Q plate or S plate cars), except where the cars are registered as “private rental cars”/”cars for education” and are rented or used to provide driving instruction as part of company business.

In the event that the car or vehicle qualifies for depreciation, the cost of COE may be included when claiming depreciation. In addition, the renewal of the COE can also be considered as an additional cost of the vehicle to claim depreciation.

Also Read: Cost Guide to Buying a Commercial Vehicle in Singapore

#8 Training costs

Unfortunately, training expenses incurred by a sole proprietor or partner, with the exception of a non-employee partner (who is considered an employee), are not allowable business expenses.

However, sole proprietors and associates can claim the course fees as course fee relief on their personal income tax return if the eligibility requirements are met.

Also Read: Guide on How to File Your Tax Return as a Partnership, Limited Liability Company (LLP) or Limited Partnership (LP)

#9 Home Office Renovations

Renovation or restoration work (eligible expenses) are authorized professional expenses. This includes general electrical installation and wiring for power supply, painting, fixed partitions and on-site hacking. Although most business owners are aware of this for commercial premises and offices, it is also allowed for home offices.

Under the Home Office Scheme, HDB apartments and private residences can be used for home-based businesses.

According to IRAS, if a premises is used for both business and other personal purposes (e.g. home offices), it may qualify for an S14N deduction. “Only R&R costs that are specifically identifiable to the area used for business purposes may be eligible for the S14N deduction. If you cannot specifically identify the R&R costs in the area used for business purposes, you are not allowed to claim the S14N deduction, as no allocation of R&R costs is allowed for tax purposes.

Also Read: The Ultimate Business Owner‘s Guide to the HDB Home Office Program

#10 Volunteer

For self-employed volunteers, authorized expenses are tax deductible. Under the Business and IPC Partnership Scheme (BIPS), businesses (including sole proprietorships and partnerships) can apply for 250% tax deduction on eligible expenses.

This would include qualifying salaries for time spent volunteering (not including preparation and travel to and from). Instead of actual salary, companies can also claim a tax deduction on salary expenses based on fixed hourly rates: at $10 per hour for general volunteering and $20 per hour for skills volunteering .

Also read: Business and IPC Partnership Scheme (BIPS): how companies benefit from tax deductions while volunteering with charities

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