- Business owners can significantly reduce their tax payments by claiming deductions on their ongoing expenses
- Some of the most common tax write-offs include office expenses, car expenses, capital assets, and general operating expenses
- It’s useful to work with a professional to know what can be claimed so you can save money and reduce your expenses
- By knowing how to take advantage of tax write-offs, you may be able to get your hands on more equipment, tools, resources for your business
As a small business owner, one of your top priorities aside from increasing revenue is to decrease expenses. One great way to reduce expenses is to make use of a variety of tax deductions that will bring down the overall amount of expenses through tax write-offs.
To be deductible, a business expense must be ordinary (common in your industry or trade, such as software) and necessary (needed to run the business, such as supplies). Broadly speaking, anything that constitutes a reasonable small business expense incurred to generate business revenue can be considered tax-deductible.
In this article, we’ll cover some of the most common tax deductions, approved by the Canada Revenue Agency (CRA) that small business owners can claim.
There are many different types of expenses that could fall under the umbrella of “office expense”, and while this could be the largest expense area that you can deduct against your business income, you’re only allowed to deduct the amount in proportion to what you actually use for business purposes.
Your office expenses can include rent/mortgage payments, mortgage interest, property taxes, utilities, maintenance fees, home/condo insurance and any other upkeep expenses that you incur to maintain the property that you work out of.
If you’re operating your business from your home, you can also deduct similar expenses incurred to operate your business.
To qualify for home office expense deductions, you must meet one of the following two conditions:
- You use your home more than 50% of the time when you work
- Your home is exclusively used to conduct work and you regularly hold meetings there
Home office expenses can include rent/mortgage payments for your home as well. While this could save you a significant portion off your tax payments, it doesn’t necessarily mean that you can write off the entirety of your mortgage or rent payments. The amount you can write off must represent the amount used for business. For example, if your home is 1000 sq. ft. and your office is 250 sq. ft. you’ll be able to deduct 25% of your home related expenses from your small business income.
The only caveat with home office expenses is that if you have office space that you’re simultaneously renting, you cannot write off home office expenses even if a portion of your work is conducted from home.
Automobile expenses are the second most common type of deductibles. Most businesses use a vehicle, such as a car, truck, van, etc., to conduct business and luckily, these can be written off to lower your overall expenses.
Vehicle expenses can include car payments, oil and gas, maintenance, tolls and parking. Once again, it’s important to remember that you can only deduct the amount in proportion to what you actually use for business purposes and not the personal portion. Most vehicle types do have upper limits of $30,000 for the capital cost allowance (CCA) (i.e. the cost of the vehicle), so it’s important to be aware of the amount you’re planning to write off.
One way to reduce the hassle of tracking receipts and payments is by tracking business mileage. The CRA allows business owners to claim a reasonable portion of their vehicle expenses back as a tax deduction. Using your total mileage can be an organized way to track the amount you can claim. Speak to FShad CPA Professional Corporation for strategies and tips to better track your mileage log.
Business owners also have the option to write off capital assets over a period of multiple years. This includes large equipment, vehicles, and even property that will contribute to business operations for years to come. In some cases, you can write off the full cost of certain property you purchase for business use, in the tax year in which you purchased it.
Claiming property used for business operations can also be claimed through its depreciation. Claiming depreciation requires the deduction of a certain allowance each year from your taxes to cover the overall cost. If you haven’t claimed depreciation costs in the past, there may be leftover allowances from prior years that can create opportunities for maximizing these claims.
General Operating Expenses
No matter what industry you’re in, there are general expenses you will accrue during your business dealings that will be deductible. This includes phone bills, internet, office supplies, cleaning supplies, software licenses, hand tools, travel, meals, and entertainment.
It’s important to remember that any expense that is directly related to the business and any revenue generated can be deducted from your tax return. While it’s important to keep records to prove that these expenses did in fact contribute to business, there are many expenses that can be claimed without issue as long as there is adequate documentation to support your expense and the amount is not specifically prohibited under the Income Tax Act.
Since the list of deductible expenses is long and comprehensive, it’s important to have an expert that is familiar with commonly-claimed items to ensure you don’t miss out on your tax savings.
FShad CPA Professional Corporation can work with you to claim all eligible write-offs as you prepare for tax season. With COVID-19 pushing many business operations back home, there may be many expenses that you may not know you can claim.
Book a consultation today and get started with our team of expert accountants!
FShad CPA Professional Corporation
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This publication is produced by FShad CPA Professional Corporation as an information service to clients and friends of the firm, and is not intended to substitute for competent professional advice. No action should be initiated without consulting your professional advisors. Your use of this document is at your own risk.