The tax season is upon us, and you know what that means! A lot of headaches trying to figure out how much you owe the taxman (KRA in our case) and whether there is a way you can reduce that tax liability without getting yourself in trouble. 

And what better way to reduce your tax liability than having business expenses to deduct? 

Section 15 of the Income Tax Act Cap.470 (ITA) provides allowable expenses in Kenya. Under this provision, the governing rule is that all costs a business deducts from its income should be wholly and exclusively for creating income. 

Simply said, not every expense you incur is deductible. As long as an expense is not incurred in running your small business or consultancy, it’s not tax-deductible. If you incur that expense as part of your personal errands, then it’s not going to fly. 

Guaranteeing genuine tax deductions is a crucial strategy for managing business taxes. That’s why it is important to work with a tax consultant or a certified accountant to help you this tax season. This way, you can be assured that you are not paying more taxes than necessary, and you’re not evading taxes, either. 

Speaking of which, Are You Tracking Your Business Expenses?

Common Tax Deductions to Take Advantage of

Below are the most common tax deductions for small businesses you could deduct:

Home Office

If you have converted a spare room in your apartment or house into a home office space, you may be able to deduct costs incurred while using it for business. These costs may include insurance, mortgage interest, utilities, depreciation, and repairs. 

Remember, you can claim these expenses only if the spare room is used for business only regularly. If that room is an occasional guest room for your loved ones and other guests, it’s not really a home office. 

Also, you can not deduct the whole mortgage or rent amount or the whole amount used on repairs for the entire house. The only applicable expenses you need to deduct are those you incur for the specific room that’s your home office. 

Rent

Suppose you rent a space for your business; the cost is fully deductible regardless of whether it’s an office space in a business complex or a room in a warehouse complex. 

Advertisement Expenses

Do you promote your business with any advertisements? Then your advertisement expenses are tax-deductible. From social media ads and flyers to billboard placement, business card printing, and radio or TV advert payments. 

Office Supplies

What office supplies do you use? Think of expenses like pens, notebooks, diaries, sticky notes, printing papers, ink, paper shredders, files, folders, just to name a few.  

Utilities

All the expenses your business incurs in utility bills are deductible. These expenses include water, phone, internet, electricity, and sewer services. 

Wages And Salaries

Salaries, wages, allowances, commissions, and bonuses are tax-deductible. You can also write off contributions to employee benefit programs such as retirement plans, health insurance, and education assistance.

Repairs

Have you done any repairs in your office? Think of paint jobs, a leaking roof, repair of broken faucets and doors, etc.

Vehicle Expenses

If you own a car for business purposes, then everything you incur in running your business is deductible. However, you must separate personal errands from those you incur for business purposes. Keep receipts to help you stay accountable. 

Related read: 3 Tax Regimes To Be Aware of in 2022 For Your Small Kenyan Business

Travel

If you or your employees travel a lot for business purposes, you can write off all the travel expenses incurred. Ensure you keep the receipts and other travel records.

Meals

Do you spend significant amounts of money wining and dining with your clients? The lunch and dinner dates you have with clients to go over business agreements or make deals are deductible. So are expenses you spend on your employees’, like having a company picnic or getaway. However, going clubbing or luxurious events like concerts will not fly. 

Insurance Expenses

Protection is essential regardless of the type of business you are running. The insurance premiums paid against risks such as fire, flood, liability insurance, or business owner’s policy are deductible. Sometimes, medical insurance for employees is also deductible.

Debt Interest

If you can run your business without credit, the better. However, there are times when credit is necessary for building your business’s credit score or a significant business expense. So, if you have any business loans, the interest you pay to the creditor is tax-deductible. 

Professional And Legal Fees

As much as being hands-on in your business is necessary, you clearly can’t do everything. That’s where professionals come in. Perhaps you need a bit of legal advice, an accountant to help you with financial issues, or an auditor at the end of the year to certify your books. The fees you pay these professionals are tax-deductible. 

Conclusion

Small business deductions come with qualifications, limits, and restrictions. If you dread anything to do with taxation, you can hire a licensed tax professional to help you file your yearly returns. Businesses with simple tax returns can use business tax preparation software and bank statements.

Write down or record the expenses you claim together with the amount, date, and purpose for your business on a spreadsheet. Using accounting software is easier and offers better reporting. This information is essential in case you explain it to the tax authority. Also, keep receipts, invoices, and bank and credit card statements as they are great reminders of expenses and are proof of purchase.