Home – New Forums Money matters Taxes and funding a small start up business with full time jobs income?

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  • #982556
    testytarantula
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    Hi Guys,

    New to the community, hoping to learn a lot and gain some actual insight into this whole running a business thing :)

    I’ve been ‘running’ a small business (making games for iPhone, Android, Windows Phone) from home in my spare time, the nature of the business requires a lot of investment and little return for long stretches of time.

    The only way I can fund this business is by spending my earnings from my day job on it.

    So my question is, can the money I spend on this business from my full time job be used as a tax deducation from my full time jobs income tax?

    I don’t mean in the sense of paying myself a ‘salary’ for the small business but investing in resources (mostly hardware) and hiring freelancers for things I can’t do myself. Of my gross net income I bring home from my day job I might be spend a good 20 to 30% of it on this business, I would spend more if I could and that’s another motivation for trying to get tax deductions, to basically re-invest in the business.

    I’ve been thinking of contacting an accountant and asking these sorts of questions but I’m not sure where to begin or even who to ask. Also I’m open to anyone suggesting an accountant for this type of work.

    Thanks for any help!

    #1137415
    Chris Brodie
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    Hi Testytarantula,

    In reply to your question about deducting your business expenses against your “salary” income, the Taxation legislation will only allow it in certain circumstances. It will depend on things like:

    – Have you made a profit in any three of the last five years?
    – How much have you invested in the business?
    – Your business turnover?
    – Can you reasonably expect to make a profit?

    There are more requirements than the above, but these are the main ones. The short answer is if you are only making losses and your investment in the business is not great, then the law requires that the “losses” from the business be quarantined and can only be used to offset future profits from the business. I am happy to talk it through with you if you wish to make contact.

    #1137416
    Healthy Personal Finances
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    Unfortunately I agree with the above.
    Anything spent on the business can’t (generally) be used to reduce your taxable income earned from your salary and wage.

    The tax office will also want to make sure the business is actually a business and not a hobby once you do start generating income.

    Hope this helps.
    Cheers
    Stacey

    #1137417
    testytarantula
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    Thanks for the replies guys.

    Does anything change if I was working as a contractor instead of as a full time employee?

    #1137418
    Healthy Personal Finances
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    Not really !
    As the two things are mutually exclusive.

    The tax office only lets you claim business expenses against business income – from the same business. If the business is not earning income, you technically can’t claim the loss….but the loss sits there and carries forward to offset against future business income.

    You will still get taxed personally on your contractor income or salary and wage income.

    You may want to speak with an accountant – as it is hard to give this kind of advice without understanding the structure of the “business”.

    Cheers
    Stacey

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