Do you know what tax deductions your business is eligible for?
When tax season comes around, it’s important to make the most out of eligible deductions to save you money and help your business grow!
However, before you start claiming whatever you can for your business, be sure that all deductions are supported by original invoices and paperwork.
Doing so is the best way to avoid an audit or any issues if you are audited.
Eligible Expenses to Claim
As a general rule, businesses can claim expenses that maintain the business and ensure that it is operational.
And there is a lot you can claim! To maximize your business tax return, be sure to take advantage of these tax-deductible business expenses:
Advertising
You can deduct costs for advertising on Canadian radio and television, in Canadian newspapers, and digital advertising.
Bad Debts
If you have already included an accounts receivable as income during the year, you can claim it as a bad debt if it won’t be paid.
Business Start-Up Costs
Tax-deductible business expenses include those that preceded the operation of your business as long as you operated your business in the fiscal period in which the expense was incurred.
Business and Property Taxes
Be sure to deduct any business taxes incurred while running your business as well as property taxes for the building and land where your business is located.
Business Fees and Licenses
Fees, licenses, and dues related to your business are deductible unless the main purpose of the fees is dining, recreation, and entertainment.
Business-Use-Of-Home
If you run your business from your home, you can claim use-of-home expenses such as heat, electricity, insurance, maintenance, and other expenses.
However, you can only claim a percentage that is dependent on the size of your office compared to the rest of your home.
Capital Costs and Allowance
When you acquire a depreciable property (such as equipment, a motor vehicle, a building, etc.), you cannot deduct the cost of the property because its value decreases over time.
Instead, you can deduct the cost over a period of several years
Delivery
If your business is involved in delivery, freight, and express, you can claim certain expenses on your taxes.
Insurance
All ordinary commercial insurance premiums can be deducted as a business expense including any amounts incurred on buildings, equipment, and machinery.
Auto insurance claims are made under vehicle expenses.
Interest
When it comes to tax-deductible business expenses, you can deduct interest on money borrowed for business purposes.
Professional Fees
If you employ the services of an accountant, lawyer, or other eligible professional, you can claim those fees.
Maintenance and Repairs
You can deduct the cost of labor and materials when it comes to minor repairs or maintenance done to your business property.
Meals and Entertainment
This business tax deduction applies to meals and entertainment during business-related travel or events. It also applies to long-haul truck drivers who can deduct 80% of their food costs.
Motor Vehicle Expenses
If your business utilizes a motor vehicle to earn income, you can deduct related expenses.
Office Expenses and Supplies
When you run a business, you can claim the costs of office supplies such as pens, paper, and any supplies required to provide your goods and services.
Office expenses do not include capital expenditures.
Prepaid Expenses
Under the accrual method of accounting, you can claim expenses you paid ahead of time such as warranty, contracts, taxes, and workers’ compensation liability.
Rent
If you rent your business property, you can deduct rent for the land and building.
However, if you are claiming rent as a home business expense sense, this is done under business-use-of-home.
Salaries and Benefits
As a business with employees, you can deduct gross salaries and other benefits such as CPP (Canada Pension plan) and EI (Employment Insurance) premiums.
Utilities
Tax-deductible business expenses for utilities include telephone, gas, oil, electricity, water, and internet – as long as you incurred the expense to earn an income.
Ineligible Expenses You Cannot Claim
While there are many tax-deductible business expenses, there are some that you cannot claim on your business taxes:
- Clothing purchases including special gear
- Reimbursed maintenance and repair costs
- Political contributions
- Governmental penalties and fines
- Personal purchases
Recent Changes to Deductions (If applicable)
One recent change made by the CRA in 2017 eliminates the ability to claim allowance on eligible capital property.
Property that would have been considered eligible capital property is now considered to be depreciable property and can be claimed under “capital cost allowance.”
FAQs
How do I claim items and services that I use for both home and work, like my cell phone or vehicle?
You will have to figure out the portion that is used for business, create a percentage using the total use, and deduct that from your business taxes.
For example, if you use your cell phone for 25 hours per week for business and 90 hours total for the household, this would equal 27% so you would deduct that percentage of your cell phone bill.
I do all of my business taxes and invoicing online. Do I need to keep paper copies?
While you don’t necessarily need physical copies of this information, you will need to have access to them for at least six years in case you are audited.
How do I deduct business equipment I bought for my staff?
Depreciable equipment, such as laptops, is considered capital costs. You can deduct the value of the equipment over a number of years – this is known as a capital cost allowance (CCA).
I have an office at both my business and my home. How do I claim this?
Typically, you would claim your main office on your business taxes but this would be a great question for a professional accountant who can give you an answer based on your unique situation.
Need More Help Understanding Business Tax Deductions?
Liu and Associates are here to help?
Our team of professional and knowledgeable accountants can guide you through filing your business taxes to ensure you get the best return possible and avoid any inconvenient audits.