Running a business comes with many costs—marketing, rent, travel, and salaries. These expenses add up quickly. But did you know that some of them can reduce your tax bill? Many businesses lose money each year simply because they don’t track or claim deductions properly.
Every dollar spent on essential business expenses could lower your taxable income. But to benefit, you need to know which costs qualify and how to record them. Overlooking allowable expenses means paying more in taxes than necessary.
This guide will break down the most common business expenses, explain how to maximize deductions and show you the best ways to track spending. By the end, you’ll know exactly how to save money and keep your business finances in check.
What Are Allowable Business Expenses?
Allowable business expenses are costs needed to keep a business running. These costs can be deducted from total earnings, lowering the amount of tax the business has to pay. In simple terms, they help reduce financial strain by covering necessary spending.
Examples of Allowable Expenses:
- Wages, salaries, and employee benefits
- Rent, electricity, and water bills
- Advertising and marketing costs
- Fees for accountants, lawyers, or consultants
Proper expense tracking can lead to big savings. For example, businesses in Singapore can reduce their taxes by claiming costs like office repairs and staff training. The IRAS (Inland Revenue Authority of Singapore) allows companies to deduct these expenses, making tax bills more manageable.
Now that you know what expenses qualify, let’s go over the rules to ensure your claims are accurate and follow the law.
General Rules for Claiming Business Expenses
Not all expenses can be deducted from your taxes. To qualify, a business expense must follow these rules:
1. The Expense Must Be for Business Use Only
You can only deduct costs that are necessary for running your business. If an expense benefits you personally, it does not qualify.
Allowed: Buying office supplies for your employees
Not Allowed: Purchasing groceries and labeling them as office snacks
If an expense is partly for business and partly personal, only the business portion can be claimed.
Example: A business owner using their car for both work and personal trips must track mileage to deduct only the work-related costs.
2. You Must Keep Proper Records
To claim an expense, you need proof. Receipts, invoices, and contracts help confirm that the purchase was business-related.
Best Practices:
- Keep both digital and paper copies of receipts
- Use accounting software or apps to track spending
- Store records for at least five years in case of an audit
Without proper documentation, your claim may be denied
3. The Expense Must Be from the Correct Tax Year
You can only claim expenses for the year they were paid. If you pay for a service in June 2024, it must be included in your 2024 tax return.
Example: A business pays an annual software subscription in December 2023. Even if the software is used in 2024, it must be claimed in the 2023 tax year.
Key Differences in Business Expenses
Not all expenses are treated the same way. Here’s what you need to know:
1. Business vs. Personal Expenses
A business expense is something needed for work. A personal expense is something for yourself or your family.
Example:
- Business expense: A designer buying a work laptop (deductible)
- Personal expense: A designer buying a personal laptop (not deductible)
Some expenses, like home internet or phone bills, can be partly deducted if used for work.
2. Capital vs. Revenue Expenses
Some purchases are fully deductible in the same year. Others must be spread out over time.
Example:
- Revenue expense: Buying printer ink (fully deductible)
- Capital expense: Buying a new office printer (deducted over multiple years)
Now that you know the rules, let’s explore the most common business expenses and how you can maximize deductions.
Categories of Allowable Business Expenses
Knowing what business expenses you can deduct helps lower your taxes. These expenses cover the costs of running your business. Let’s break them down into simple categories.
1. Staff Costs
This includes the money you spend on employees. You can deduct:
- Salaries and bonuses
- Mandatory contributions like Singapore’s CPF (Central Provident Fund)
- Training programs and skill development
Example: A company that pays for employee training programs can deduct the cost, reducing its tax bill.
2. Operational Costs
These are the basic costs of keeping a business running. They include:
- Office rent
- Electricity, water, and internet bills
- Office repairs and maintenance
Example: If a business rents an office, it can deduct the monthly rent from its taxable income.
3. Professional Services
If you hire experts to help with legal or financial matters, their fees are deductible. This covers:
- Accounting and audit services
- Legal advice and lawyer fees
- Business consulting services
Example: A company that hires an accountant for tax filing can deduct the accountant’s fee as a business expense.
4. Advertising and Marketing
Money spent on promoting your business is deductible. This includes:
- Online ads (Google Ads, Facebook Ads, etc.)
- TV, newspaper, and radio ads
- Sponsorships and event promotions
Example: A business running Instagram ads to attract customers can deduct the full cost of the ads from its taxable income.
5. Travel Expenses
If you travel for work, you can deduct the costs. This includes:
- Plane and train tickets
- Hotel stays
- Local transport like taxis, rental cars, and ride-sharing apps
Example: A sales manager who travels to Malaysia for a client meeting can deduct airfare, hotel, and transport costs.
6. Research and Development (R&D)
If your business spends money on innovation, you may get extra tax benefits. R&D expenses include:
- Developing new products or services
- Upgrading business software and technology
- Product testing and research
Example: Singapore’s R&D Tax Incentive Scheme offers up to 250% tax deductions for businesses that invest in research and development.
Knowing which expenses are deductible helps businesses save money, stay organized, and follow tax rules. But not all costs qualify. Up next, we’ll look at expenses that are not deductible so you can avoid mistakes.
Non-Deductible Business Expenses
Not every business expense can lower your taxes. Some costs don’t qualify for deductions, and claiming them by mistake could lead to fines or audits. Here’s what you need to know.
1. Personal Expenses
If an expense isn’t directly related to your business, you can’t deduct it.
- Gym memberships or personal fitness programs
- Vacations, even if you take business calls during the trip
- Everyday clothing (unless it’s a required uniform for work)
Example: If a business owner takes their family to dinner and labels it a “business meeting,” they could face penalties if audited.
2. Fines and Legal Penalties
Breaking the law is never tax-deductible. Any penalties your business pays cannot be written off, including:
- Late tax payment fines
- Traffic tickets, even if received on a work trip
- Lawsuit settlements for business violations
Example: A company fined for ignoring workplace safety rules cannot claim that cost as a business expense.
3. Personal Vehicle Expenses (Used for Both Business & Personal Use)
If you use your car for work, you can only deduct business-related trips.
- Daily commutes between home and office
- Gas, repairs, or insurance for personal travel
If you track business miles separately, you can claim a percentage of fuel, maintenance, and wear and tear.
Example: A salesperson who drives to meet clients can claim the mileage. But a trip to the grocery store, even if it happens after a meeting, does not count.
4. Entertainment and Gifts Without a Clear Business Purpose
Some client-related entertainment can be deducted, but spending must have a valid business reason.
- Expensive dinners with friends labeled as “client meetings”
- Luxury gifts for non-business contacts
- Recreational club memberships or personal entertainment
Example: If a business owner takes a client to a modest dinner to discuss a deal, it may qualify. But throwing a personal birthday party and calling it a “networking event” does not.
5. Large Business Purchases (Capital Expenditures)
Big purchases that improve your business are not immediately deductible. Instead, they are claimed over time.
- Buying office buildings or land
- Purchasing expensive machinery or company vehicles
- Investing in trademarks, patents, or business goodwill
Instead of writing off the full amount at once, businesses can deduct a portion each year through depreciation.
Example: A company that buys a $10,000 computer system cannot deduct the full cost in one year. Instead, they deduct a portion over multiple years.
Understanding what you can and can’t claim helps prevent tax audits, financial penalties, loss of potential deductions, and unnecessary stress during tax season.
To stay compliant and maximize savings, businesses should track expenses carefully and follow clear rules. Next, we’ll cover best practices for managing expenses the right way.
Tips for Managing and Maximizing Deductions
Tracking business expenses isn’t just about keeping receipts. It’s about reducing taxes, avoiding penalties, and keeping your finances in order. Many businesses miss out on deductions because they don’t track expenses properly or don’t know what qualifies.
By following these simple steps, you can save money, stay compliant, and make tax season stress-free.
1. Keep a Clear Record of Every Expense
Maintaining organized financial records ensures that you can substantiate your claims during audits, and digital tools help you manage your expenses.
If you can’t prove an expense, you can’t claim it. Missing receipts or vague records can lead to rejected claims or tax issues.
- Save all receipts, invoices, and digital payment confirmations.
- Use a business expense tracking app to log purchases in real time.
- Keep digital copies—paper receipts fade or get lost easily.
Example: A small business used to lose receipts and struggled during tax season. After switching to a digital expense tracker, they saved hours of work and maximized their deductions.
2. Separate Business and Personal Finances
Mixing personal and business expenses can confuse and make it harder to track deductions.
- Open a business bank account and use it only for work expenses.
- Get a business credit card to track purchases easily.
- Pay yourself a salary instead of using business funds for personal expenses.
Why It Matters: If your business and personal finances are mixed, it’s harder to prove which expenses are deductible. This can lead to denied claims or tax penalties.
3. Don’t Overlook Less Obvious Deductions
Many businesses miss deductions simply because they don’t know they exist. Some of these can add up to big savings.
- Home office expenses (if you work from home).
- Software subscriptions (such as accounting or marketing tools).
- Business meals (when meeting clients or partners).
Example: A consultant started tracking home office costs and saved over SGD 5,000 on taxes in one year.
4. Plan Big Expenses at the Right Time
Making large purchases affects your tax bill. Smart planning can help you lower your taxable income and spread costs wisely.
- If your profits are high this year, buy the necessary equipment before the end of the year to reduce your taxable income.
- If you expect lower income next year, delay major purchases to offset future taxes.
- Use depreciation rules to claim deductions over time for big purchases.
Example: A business needed new computers. It bought them before year-end, reducing its tax bill while improving its operations.
5. Get Expert Tax Advice
Tax laws change often, and mistakes can be costly. A tax expert can help you find deductions you didn’t know existed.
- They know industry-specific deductions that most business owners miss.
- They ensure you follow tax laws to avoid penalties.
- They can strategize your expenses to lower your tax bill.
Example: A business owner consulted a tax expert and found out they could deduct training courses and work-related travel, leading to major savings.
Managing business expenses manually can still be daunting. Here’s how Peakflo simplifies the process.
How Peakflo Helps Businesses Manage Expenses More Efficiently
Managing business expenses takes time, especially when invoices, approvals, and records are handled manually. Without a clear system, businesses risk missing tax deductions, delaying vendor payments, or struggling with compliance. Peakflo automates key accounts payable tasks, helping businesses track and manage expenses more easily.
1. Automate Invoice Processing
Sorting invoices by hand is slow and can lead to mistakes. Peakflo captures invoice details automatically, reducing manual work. Instead of entering data line by line, businesses can scan invoices, and Peakflo extracts key information instantly. This ensures business expenses are logged correctly and are always easy to find.
2. Get Clear Insights Into Spending
Understanding how money is spent helps businesses plan better. Peakflo’s real-time dashboards track business expenses, upcoming payments, and spending trends. With this information, businesses can manage cash flow, cut unnecessary costs, and stay on top of financial commitments.
3. Faster and Smarter Expense Approvals
Delays in approving business expenses can slow down payments and create issues with vendors. Peakflo streamlines approval workflows, ensuring every expense follows company policies. Managers can review and approve expenses digitally, reducing wait times and keeping payments on schedule.
4. Automate Payments and Reconciliation
Managing payments manually takes time and can lead to mistakes. Peakflo automates vendor payments with a secure, multi-currency wallet. Businesses can schedule payments in advance, ensuring vendors are paid on time. The system also tracks approvals, creating a clear record of every transaction. Once payments are processed, Peakflo syncs the details with Xero, QuickBooks, and other accounting tools. This reduces manual work, improves accuracy, and keeps financial records ready for audits.
5. Organized Records for Compliance and Audits
Matching vendor statements manually takes time and can lead to mistakes. Peakflo automates this process by capturing statement data and spotting mismatches instantly. If there is an issue, businesses can resolve it faster using Peakflo’s vendor communication tools. All invoices, approvals, and payment records are stored in one secure place. This makes it easy to find information when needed. With accurate records, businesses can stay compliant and handle audits without stress.
Conclusion
Managing business expenses can feel overwhelming, especially when receipts go missing and records pile up. Without a proper system, businesses risk missing deductions, overspending, or scrambling to get everything in order when tax season arrives.
It’s frustrating to spend hours sorting through expenses only to realize key details are missing. Late payments, lost invoices, and inaccurate records can lead to cash flow issues and compliance risks. These problems don’t just cause stress but also cost money.
Peakflo takes the guesswork out of expense management. It helps businesses track spending in real-time, store invoices securely, and automate approvals. With everything in one place, businesses can reduce errors, avoid late fees, and stay prepared for tax filings and audits. If tracking expenses has become a constant struggle, it’s time for a change. Book a free demo with Peakflo and see how effortless managing business expenses can be.
