Understanding the allowable business expenses IRAS recognizes can help you save money when starting a business in Singapore. This guide is designed to help you understand how to maximize these benefits, and sustain your business growth. The goal is to ensure every dollar spent contributes directly to your company’s success.
As you review the allowable business expenses IRAS enlisted, you’ll discover various deductible expenses ranging from daily operational costs to salaries and software purchases. Knowing what qualifies can significantly reduce your taxable income, providing more resources for reinvestment.
Remember, the proper application of allowable business expenses IRAS stipulates is not just about compliance; it’s another strategic tax treatment for financial management. Review and revisit these guidelines regularly to stay informed and make educated decisions that bolster your business’s financial health.
What are the allowable business expenses IRAS recognizes?
These allowable business expenses can significantly reduce your income received, lowering your tax obligations. Here’s exactly what you can claim as a small business.
1. Staff costs
You can deduct costs related to hiring and employing staff, including salaries, bonuses, directors’ fees, CPF contributions, and training expenses. These are considered allowable as long as they are incurred wholly and exclusively in the production of income.
2. Rent and utilities
Expenses on renting office space, utilities like electricity and water, and other facilities necessary for business operations are fully deductible.
3. Advertising and publicity
Marketing expenses, including advertising campaigns, public relations activities, and promotional events, are allowable tax deductions. These expenditures must be directly related to earning business income.
4. Depreciation and amortization
While initial capital expenses on assets aren’t immediately deductible, the depreciation of these assets over their useful life is an allowable expense. The retrenchment payments also applies to amortization of intangible assets like patents and copyrights.
5. Professional and legal fees
Fees for professional services, such as accounting, legal advice, and business consultancy, necessary for the running of your business are deductible. This includes costs for incorporation if they are not capitalized.
6. Maintenance and repairs
Regular maintenance and repair costs of property and equipment used in business operations are deductible. However, major renovations or improvements are capitalized and claimed through depreciation.
7. Travel expenses
Travel expenses related to business, including trips for business meetings, conferences, or client visits, are allowable. This includes airfare, accommodation, and transportation costs.
8. Research and development
Expenditures on research and development that are directly related to improving your business products or services are deductible. Singapore also offers enhanced tax deductions for qualifying R&D activities.
9. Insurance
Insurance premiums for business assets, professional indemnity, and workers’ compensation are deductible expenses.
10. Bad debts
Bad trade debts are deductible if you have previously included the amount in your taxable income. However, sufficient evidence must be provided to show that the debt has been written off as unrecoverable.
11. Miscellaneous expenses
Other miscellaneous expenses incurred in the production of income, such as subscription fees for business-related publications and membership fees for business associations, are also deductible.
One of the most overlooked allowable business expenses IRAS enlisted is research and development (R&D) costs. If your business undertakes R&D to create new products or services, you may be able to claim enhanced tax deductions and allowances. Don’t leave that money on the table!
What is the Fixed Expense Deduction Ratio (FEDR) for self-employed individuals?
Simply put, these are costs you incur directly while running your business. This is one of the allowable business expenses IRAS enlisted, which can reduce your taxable income and, in turn, your taxes.
Allowable business expenses IRAS enlisted for self-employed individuals
- Rent, utilities, and telephone charges: These are essential costs for most businesses.
- Office supplies and stationery: Think pens, paper, printer ink, and other office essentials.
- Staff salaries and benefits: If you have employees, these costs are deductible.
- Advertising and marketing: Promoting your business is a legitimate expense.
- Professional fees paid: Accountants, lawyers, and other consultants can be invaluable.
- Travel expenses: If travel is part of your business, these costs may be allowable.
- Repairs and maintenance service fees paid: Keeping your equipment and premises in good working order is crucial.
- Training and development: Investing in your team’s skills is smart.
- Licensing expenditure: For vehicles used in your business.
Claiming FEDR during tax filing
The Fixed Expense Deduction Ratio (FEDR) simplifies the process of filing income tax returns for eligible self-employed persons (SEPs). Instead of tracking actual business expenses, SEPs can claim a pre-determined percentage of their gross income as expenses.
Here are the steps to follow to file your income tax return with FEDR:
- Determine Eligibility: Confirm if you qualify as a SEP eligible to use FEDR. You can check the Inland Revenue Authority of Singapore (IRAS) website for the latest information on eligible occupations.
- Gather Information: Collect your annual gross income details and any other relevant income documents.
- File Your Return: You can e-file your income tax return through the myTax Portal. The portal will guide you through the process, including calculating your deductible expenses based on the FEDR percentage.
- No-Filing Service (NFS): In some cases, you might be selected for the No-Filing Service. This means you won’t need to file a return if your income details are pre-filled, and you don’t have any changes to make. You’ll be notified if you’re selected for NFS.
