Small business tax deductions: Expenses you should be claiming
One of the simplest ways to reduce your income tax bill is to ensure you’re claiming all of the tax deductions available to your small business.
What exactly is a tax deduction?
Essentially, tax deductions allow you to pay less money to the CRA for your income tax - pretty cool right? A tax deduction (or “tax write-off”) is an expense that you can deduct from your taxable income, resulting in a lower tax bill. But the catch?
The expense has to fit the CRA’s criteria of a tax deduction and other rules regarding what expenses are considered “reasonable” business expenses.
Below you’ll find a comprehensive list of write-offs commonly available to small businesses. But, like anything else in accounting, your specific situation will affect what expenses you are entitled to, and there may be industry specific expenses you can be taking advantage of that aren’t listed here. The best way to ensure you are tracking and capturing every legitimate deduction you can is to consult with a small business tax professional like us here at Small-Books. Learn more about how we can help save you time and money by filing your taxes.
Most common small business tax deductions
Home Office Expenses
Many small business owners work from the comfort of their home. And if you do, the space in your home that is dedicated to work is considered your home office, and it is a tax deduction! You can deduct the following expenses from your taxable income. Note that these should be proportionate to the usage of livable space that you use for business. Meaning, if you use 20% of your house for your office, then you can only deduct 20% of the total expense.
Rent or Interest on Mortgage (note: mortgage principal is not deductible)
Utilities (hydro, water, condo maintenance fees)
Property taxes
Insurance
Repairs and maintenance (painting, flooring, plumbing)
Business Mileage
Similar to the home office deduction, you can deduct business-related vehicle expenses. Again, the “catch” here is that you can only deduct a portion of the expense (only the milage that was for business activities). You also need to be able to prove that the milage you claimed was for business purposes. To do this you can manually keep a milage log where you note the distance you traveled for business purposes, or you can utilize an automatic milage tracker app, like the one offered with QuickBooks.
The expenses you can deduct include:
Gas
Interest on financing (subject to a limit)
Licence and registration
Insurance
Repairs and maintenance (fixing, car wash, oil changes, parts)
Parking fees (fully deductible, if relate to specific business travel)
Online advertising
Expenses that you pay for online advertising are currently 100% deductible. That includes ads on Facebook, Fiverr, Google, Twitter, Pinterest etc.
Note that there are certain limitations for radio, newspaper and magazines ads.
Business-related travel
Travel costs that are 100% related to business are fully deductible. These include, but are not limited to:
Plane/Bus/Train tickets
Travel insurance
Hotel and accommodation
Car rental
Parking fees
Cost of seminar/conventions/conference admission (limited to 2 events per year)
Note that meals and entertainment expenses during a trip are still subject to the 50% limitation, meaning you can only claim half of the amount as a business expense.
Travel costs that relate to family members are only allowed if they are directly involved in your business.
Gifts to Clients
You can write off reasonable amounts of gifts and gift cards to your clients and customers as an advertising expense. If you bought a box of chocolates and gifted it to the client, then it is a fully tax-deductible business expense. Gifts must be reasonable in nature and proportionate to your revenue.
Note that meals and entertainment gift cards (e.g. Tim Hortons, restaurant gift certificates, sports game tickets) are only 50% deductible.
Write down the name of the client on the receipt. CRA may want to see that in case of an audit.
Accounting and legal costs
All professional fees - including the use of an online bookkeeping service like Small-Books - is fully tax deductible! Other professional fees you can claim include:
Business start-up costs (licensing, incorporation, agreement drafting fees)
Legal fees incurred in the regular course of business (contracts, tax appeals, trademarks)
Accounting fees (bookkeeping, filing, advice)
Staying on top of your deductions
As a small business owner, it can be difficult to know what deductions are relevant to you.
Many people struggle to stay on top of their deductions year-round and instead try to piece things together at year end and run in to difficulties. Remember that restaurant expense you incurred in January last year? Most people don’t, and therefore they miss this tax write off. Add them all up and you’re missing out on a lot of potential tax savings!
That’s where Small-Books comes in
To claim these deductions, you’ll need to keep accurate records and stay on top of your monthly bookkeeping.
But bookkeeping can be a full-time job for many small business owners! If you don’t have the time to keep up with it all, check out Small-Books.
We record these deductions each month for you, so you can be confident you’re minimizing your tax liability. We’ll even file your taxes!
This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. Small-Books assumes no liability for actions taken in reliance upon the information contained herein.
