10 Tax Deductions For Self-Employed Persons That You May Be Missing Out On

Just like companies, self-employed persons have to report their income from their business. However, the difference is that self-employed persons report this income as part of their individual income tax. If you are filing your own taxes, you may want to become more familiar with IRAS’s allowed business expenses and tax deductions.

Here are some allowed business expenses and tax deductions that you may be missing out on as a self-employed person.

Read Also: 7 Financial Thresholds Small Businesses Need To Know For Tax Reporting In Singapore

#1 Accountancy fees

As a self-employed person, there is a tendency to do everything ourselves, including filing our own taxes, even when our accounts become more complex.

If you are unfamiliar with the necessary bookkeeping and paperwork of filing your own taxes, it may be assuring to know that accountancy fees are tax deductible. Thus, you may want to hire an accountant to help you with the necessary filing. A good accountant can help you with not just the bookkeeping but may also advise you on other important financial matters.

#2 Interest On Money Borrowed For Use In Business

In the course of running a business, it may be necessary to take a loan and incur interest. While the loan amount is not tax deductible, the interest incurred is an allowed business expense.

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

#3 Hire Purchase Interest And Capital Allowances

The purchase of fixed assets is not tax deductible. However, if we choose to use hire purchase to acquire our fixed assets, the interest on hire purchase is an allowed business expense.

Fixed assets also suffer ‘wear and tear’ and depreciate over time. We can claim capital allowances for the wear and tear of qualifying fixed assets bought and used in trade or business. This can be claimed when the expense is incurred, which is when the legal liability to pay arises, regardless of the date of actual payment of the money.

Examples of fixed assets include computer, printer, photocopier, furniture and fixtures. These must qualify as ‘plant and machinery’ used in our company’s trade, business or profession.

Low value assets (not more than $5,000) may be written off (i.e. claimed capital allowances) in one year, subject to a total claim of $30,000.

#4 Renewal Of Leases And Business Licences

As new business owners would know, starting a business incurs start-up costs such as fees for the applicable business licences, legal fees and stamp duty on new lease agreements. While the initial fees for a new lease agreement and new business licences are not tax deductible, the renewal fees are allowed business expenses.

#5 Medical Expenses

Unfortunately, medical expenses incurred on the sole-proprietor or partner are not allowed tax expenses.

However, if our sole-proprietorship or partnership hires any employees, these employees’ medical fees are tax deductible, subject to a cap of 1% of the total employee remuneration accrued for the year. This cap is increased to 2% if the company implements Portable Medical Benefits Scheme (PMBS), Transferable Medical Insurance Scheme (TMIS) or provide inpatient medical insurance benefits in the form of portable medical shield plans.

Read Also: Medical Benefits That Businesses Have To Legally Provide For Their Employees In Singapore

#6 Cost Of Transport

The cost of travelling on public transport in the course of business is fully allowed as a business expense. However, the cost of travelling to and from your home is disallowed.

Additionally, the expense of using private cars is not allowed. According to IRAS, “expenses incurred directly or in the form of reimbursement on using private hire cars or private cars (E, Q or S-plate cars) such as repair, maintenance, parking fees, petrol costs are disallowable. These expenses are not deductible even if the private cars were used for business purposes.”

However, private hire car drivers are allowed to claim car-related expenses.

Read Also: 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/ commercial vehicles such as pick up, van, truck, lorry and bus) are considered fixed assets and thus applicable for capital allowances.

However, unless you are running a car rental company and hiring out cars or a driving instructor, you cannot claim capital allowance on private cars.

According to IRAS, “no capital allowance is to be given on private cars (S-plated cars), RU-plated cars and company cars (Q-plated or S-plated cars), except where the cars are registered as “private hire cars”/”cars for instructional purpose” and are hired out or used for providing driving instruction in the course of the company’s business.”

In the case where the car or vehicle qualifies for capital allowances, the cost of the COE may be included when claiming capital allowance. Additionally, the renewal of COE may also be considered an additional cost of the vehicle for claiming capital allowances.

Read Also: Cost Guide To Buying A Commercial Vehicle In Singapore

#8 Training Costs

Unfortunately, training expenditure incurred by sole-proprietor or partner, except for non-equity salaried partner (who is considered an employee) is not an allowed business expense.

However, sole-proprietors and partners may claim the course fees as course fees relief in their Personal Income Tax Return if the qualifying conditions are met.

Read Also: Guide On How To File Your Income Tax As A Partnership, Limited Liability Partnership (LLP) Or Limited Partnership (LP)

#9 Renovations For Home Office

Renovation or refurbishment works (qualifying expenditure) are allowed business expenses. This includes general electrical installation and wiring to supply electricity, paint, fixed partitions, and hacking on premises. While most business owners are aware of this for commercial and office premises, this is also allowed for home offices.

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

According to IRAS, if a premise is used for both business and other personal purposes (e.g. home offices) may qualify for S14N deduction. “Only R&R costs which are specifically identifiable to the area that is used for business purposes can qualify for S14N deduction. If you cannot specifically identify the R&R costs to the area used for business purposes, you are not allowed to claim S14N deduction, as no apportionment of the R&R costs is allowable for tax purposes.”

Read Also: The Ultimate Business Owners’ Guide To The HDB Home Office Scheme

#10 Volunteering

For self-employed persons who volunteer, expenses allowed under are tax deductible. Under Business and IPC Partnership Scheme (BIPS), businesses (including sole proprietorships and partnerships) can claim 250% tax deduction on qualifying expenditures.

This would include qualifying wages for the time spent volunteering (not including preparing and travelling to and fro). In lieu of actual salary, businesses can also claim tax deduction on wage expenditure based on fixed hourly rates: at $10 per hour for general volunteering and $20 per hour for skills-based volunteering.

Read Also: Business and IPC Partnership Scheme (BIPS): How Companies Enjoy Tax Deductions While Volunteering with Charities

Here’s a quick infographic on the 10 tax deductions self-employed persons should not miss out on:

This article was originally published on 15 April 2022 and has been updated.

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