K.K. Chartered Professional Accountant’s Big List of Small Business Tax Deductions

As we are now in 'tax season' your small business taxes are almost certainly a focus of your attention right now. And maybe even a source of stress...

s a Canadian small business owner, you’re constantly looking for ways to save or make money, all while dealing with the never-ending to-do list that comes with running a business on a daily basis.

Although taxes are usually the last item on your mind, they are an important aspect of any successful business operation and can save or lose you money.

While you may have be aware that you may deduct expenses such as rent and office supplies, there are numerous other lesser known tax breaks that small businesses can take advantage of, and, conversely, some things you might think you can claim a deduction for but in reality cannot. Knowing what these are can help save you money and/or avoid hassles (and penalties) with the CRA.

With this in mind, we have have put together this comprehensive guide to help ensure you never leave any of your hard-earned money on the table.

What are Small Business Tax Deductions?

Tax deductions can be a small business owner’s new best friend at tax time

A tax deduction is money that the Canada Revenue Agency (CRA) allows you to deduct from your total taxable income. In some situations, qualifying for enough tax deductions may place you in a lower tax band, lowering the amount of taxes you pay for the year.

That is why it is critical to claim all the expenses you are entitled to, no matter how small: it all adds up! However, the emphasis here is on entitled to. Trying to claim things that you are not allowed to can lead to hassles you really don’t need.

What Types of Expenses are Classified as Business Expenses?

Any money spent running your business is considered a business expense, and you can claim it on your tax return as a deduction. Tax-deductible business expenses generally fall into three categories:

• Things you use exclusively when operating your business. A landscaper uses sod and mulch to provide landscaping services. A dog training service needs leashes, collars, and treats.
  Things you use exclusively for your business in the space where your business operates. If you rent office space, the utility costs you incur are a business deduction.
  Things you use while doing business. If you use your car to drive to client meetings, you can deduct the round-trip mileage as a business expense.

Some Common Small Business Tax Deductions That Might Apply to You

Business Startup Costs

The costs of starting a business might include anything from office equipment and furniture, machinery, and office supplies to legal and accounting assistance. To be qualified for a tax deduction, a start-up expenditure must occur during the tax year (or fiscal term) in which your business was established.

Marketing and Advertising Costs.

Materials utilized to sell your company, as well as the cost of developing these materials are usually tax deductible. Business cards, flyers, signage, branded promotional goods, trade show exhibits, designer fees, and printing charges are some examples.

When it comes to advertising, tax deductions for small businesses usually include the expense of advertisements on Canadian radio and television stations, as well as in Canadian newspapers. Digital advertising, as well as the cost of registering your website’s domain name and web hosting, are all tax deductible too.

Supplies for the business.

The cost of products used by your company to provide goods or services. For instance, grooming products used by a hair salon or the dog treats provided for ‘clients’ at a doggy daycare.

Supplies for the office.

Pencils, pens, stamps, paper clips, and stationery are examples of little objects you probably use around the office every day the cost of which is usually tax deductible. You may even be able to deduct the price of cleaning materials used to keep your office clean! Desks, chairs, filing cabinets, computers and even calculators are not included because they are capital items.

Rent.

Rent paid for property used in your business, including the land and building where your office is located, is tax deductible.

Small business entrepreneurs frequently operate after hours and from home. If this describes you, you may be able to take a tax deduction anyway. If your house is 2,000 square meters and your office is 400 square meters, your office is 20% of the overall area of your house. This means that you can deduct 20% of your home office expenses on your tax return.

Telephone and internet access.

Telephone, cell phone, cable, and internet service are all deductible if used for business purposes.

Utilities.

Heat, electricity, insurance, maintenance, mortgage interest, and property taxes are all expenses. Deductions for home offices must be proportionate to the actual size of the area used for business.

Employees

You can, as a small business owner, deduct gross salary and other benefits paid to employees, such as Canada Pension Plan (CPP) and Employment Insurance (EI) contributions.

If you hire independent contractors or freelancers for any business-related reason, such as taking product pictures for your online store or writing entries for your company blog you can claim what you pay them as a tax deduction as well.

Meals and Entertainment

Usually you can deduct half of what you spend on meals and entertainment while with a client or business prospect. If you take a client out to lunch or to a hockey game, you can deduct 50% of the expense from your business revenue. In addition, when travelling for work, you can usually deduct 50% of the cost of meals, beverages, and entertainment.

Shipping Costs

If you’re sending or delivering something for business, you can deduct the cost of stamps, envelopes, P.O. Box rental costs, and delivery services such as FedEx and UPS.

Professional Charges.

Legal, accounting, and bookkeeping fees are all small business expenses that can be deducted. Yes, working with us would be a small business tax deduction if you hire us as your small business accountant!

Automobile Expenditures.

You may be allowed to deduct license and registration expenses in addition to round-trip mileage and parking fees for business-related meetings and excursions. Other examples include the costs of fuel and oil, insurance, maintenance and repairs, and leasing.

While interest on borrowed funds to purchase a vehicle is deductible, you cannot claim the vehicle’s purchase price because this expense can only be written off over time under Capital Cost Allowance (CCA).

Lesser Known Small Business Tax Deductions

• Business tax, fees, licenses, and yearly dues for commercial or trade organizations. Although these items are tax deductible, you can’t deduct club membership dues or initiation fees if the main purpose of the club is dining, recreation, or sporting activities.
• Bank charges. You can often claim a deduction for bank management and administration fees, including bank processing fees and the cost of ordering cheques.
• You can usually claim property taxes for the land and building where your business is located. Property tax related to workspace used for business purposes in your home must be claimed as a business-use-of-home expense.
• Insurance. You can usually deduct the cost of commercial insurance premiums you incur on any buildings, machinery, and equipment you use in your business.
• Bad debt. Think of bad debt as any amount you’re not able to collect from whoever owes you money. You can deduct an account receivable that won’t get paid if you’ve already included it as income for the year. You can also deduct the cost of recovering balances owing to you, such as the cost of a lawyer or collection service.
• Private health services plan premiums. Payments that are made for you or for your employees and their dependents.

Things You Can’t Claim as a Small Business Tax Deduction

Remember we mentioned that some think they can claim an expense as a small business tax deduction but the CRA disagrees? Here are some common examples of those types of expenses.

Your efforts. You cannot deduct the value of your own labour when deducting business expenses for repairs and maintenance. So, if you do some DIY work around the ffice rather than hiring a professional you might save money, just not on your taxes.

• Penalties and fines. Is that a parking ticket on your windshield? You got a speeding ticket? Tax penalties for late filing? These are all non-deductible expenses.
• The cost of commuting. While travel to and from business meetings or client sites is deductible if it’s done during the workday, daily travel to and from your home to your office is not.
• Clothing. Even though you wouldn’t be seen dead in a suit outside of business hours, you can’t write it off on your taxes if you buy a fancy new one. The same goes for dry cleaning. There are a few exceptions: if you are wearing a uniform or particular safety clothes.
• Dues for golf clubs and gym memberships. They are nice to have, it’s excellent for your health, and it’s a terrific way to meet new clients, but gym and golf club memberships are not tax deductible. According to the CRA you cannot deduct membership dues or initiation costs if the primary objective of your club is dining, recreation, or sports-related.
• Premiums for life insurance. Premiums for life, health, and disability insurance are not tax deductible for businesses or individuals.

While the prospect of filing small business taxes may cause its founder – you- to cry, this annual activity provides an opportunity to do what is best for your small business. The more expenses you claim, the lower your taxable income, which can result in substantial tax savings. And as our help is tax deductible, contacting us for help this tax season is a smart idea that may end up saving you money – and stress – anyway!