Obey this one rule and SARS will never accuse you of deducting expenses incorrectly again

Simangele Mzizi, Fsp Business, 31 Oct. 2014

Tags: deductions, deducting expenses, sars

According to our tax experts, one of the biggest challenges companies face is not knowing which expenses they can deduct from their income for the financial year.

As a result, they deduct expenses incorrectly and SARS slaps them with hefty penalties or, worse, institutes legal proceedings.

If you’re in the same boat, there’s good news.

Today, our tax experts reveal the one rule you must obey to deduct expenses correctly.

Read on to find out what it is so you can avoid the wrath of SARS and reduce your tax bill legally.

Before we get to the golden rule, let’s look at a definition of a deduction in terms of tax law

According to the Practical Tax Loose Leaf Service, a deduction is an amount SARS lets you deduct from your taxable income. This is usually the actual expense you’ve incurred.
You can use the full amount of the deduction to reduce your taxable income in the year you incur it or over the period it applies to.
Now take a look at the golden rule you must follow when it comes to deductions.

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Here’s the golden rule for deducting expenses

The golden rule is you can deduct any expenditure and loss you incur in the production of income for your business, as long as it’s not of a capital nature. This is according to Section 11(a) of the Income Tax Act (ITA).
Note: Expenditure isn’t of a capital nature if you incur it when you operate an income-producing asset (e.g. paper or ink you need to do your printing).
It’s that simple.
If you follow this one rule, SARS will never accuse you of deducting expenses incorrectly again.
Since there’s still so much more you need to know about deducting expenses, check out the Practical Tax Loose Leaf Service. It will also give you tips, tools and advice that will take the hassle out of tax.

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