As I outlined in last week’s post on personal tax deductions, I’ve prepared taxes for all of my adult life and I prepare taxes for clients around my area in Canada. In doing so, I’ve learned a few things that have helped make my refunds grow every year. In this post I’m going to go over the types of deductions you should be taking advantage of for your small business. Again, this information is for Canada only.
As a small business, you should be tracking your business expenses throughout the year. This means, you know what you’re spending to keep your business running. The good news is that most of the money you spend to run and grow your business can be considered a deduction at the end of the year.
Here is a basic list of expenses that every business should be taking advantage of to reduce your gross income. For a full list visit <http://www.cra-arc.gc.ca/tx/bsnss/tpcs/slprtnr/bsnssxpnss/menu-eng.html> You may find that this list matches up to your list of chart of accounts from your accounting software. This is on purpose so it should be easy to see what type of expenses you are able to claim.
Accounting and Legal Fees
This includes your bookkeeper or accountant. So when you hire a bookkeeper or an accountant to do your taxes or corporate taxes you can deduct their fees.
Did you run an advertising campaign on Facebook or set up an email newsletter? Expenses for Facebook ads, Google ads, print ads or anything you spent money on to advertises your business is deductible. Don’t forget that your Etsy listing fees are considered advertising and should be claimed here.
Look at the cost of fuel, motor oil, lubricants, your license, registration fees and insurance but only the portion of use you use the vehicle for business purposes. Be sure to calculate what portion is business use versus personal use. It also helps to keep a mileage logbook of your business travel to help break this down. Remember this expense is for automobile travel only, other travel expenses are calculated under a different heading.
Hopefully this will not happen to you, but sometimes we will encounter a client who does not pay for our services. That money can be claimed as bad debt.
Any banking or checking account fees can be claimed here.
If you take out a loan to help run your business, more than likely there will be interest on that loan. Interest on loans to start a business is tax deductible.
You can deduct insurance premiums on the building, machinery or equipment you use for your business.
If you’re a member of any business related organization, these dues are tax deductible. For me, I belong to IPBC and pay an annual membership due. IPBC keeps me certified as a bookkeeper and these fees are deductible on my business taxes.
Meals and Entertainment
Any business related meal or entertainment, such as a social gathering for clients is tax deductible, but only up to a certain point. For example, only %50 can be claimed in certain Provinces across Canada.
Office or Studio Rent
Do you rent office or studio space to run your business out of? This amount can be fully deducted from your taxes.
This expense is considered for things you purchase to run your business such as paper for your printer, staples or pens. You can expense anything that isn’t involved in the making of your product or service.
Postage and Courier
Anytime you send out parcels through Canada Post, FedEx, or Purolator for business purposes, are considered tax deductible.
If you have a dedicated phone line for your business this is a tax deduction, otherwise a telephone is considered under Business Use of Home Expenses. You can also claim your internet and cell phone usage here.
Any expenses incurred while traveling for business, ie your plane fare, accommodation, taxi fares and meals (up to 50%). Remember to keep your receipts!
Business Use of Home Expense
If you have a home office, instead of a dedicated office space outside of your home, you can calculate how much room in your house you use for your home office and then calculate the percent of utilities, telephone, insurance, property taxes, rent, and maintenance that is allocated for the home office. That number is deductible. Check out this EXAMPLE
Capital Cost Allowances
Capital property such as buildings, equipment and vehicles you use for your business are deducted here at an annual rate. You cannot claim the full amount on your taxes, instead there is a portion that Is calculated on your taxes each year. Commonly known as CCA. For example if you are a photographer, you would claim your cameras, computers and hardware. You would need to find what it is classified as, and calculate the rate of depreciation, which you can claim every year.
Cost of Goods
This deduction is any raw materials you purchase to produce your products. This is not to be confused with the tools you use, nor are these considered Office Supplies.
And there you have it. A basic list of the business expenses you should be claiming on your taxes for your business. If you have questions about what you can and cannot claim you can sign up for a consultation with me.