\u201cI\u2019ll write it off as a business expense.\u201d <\/p>\n
It is so satisfying to say, but any entrepreneur<\/span><\/a> knows that the process behind this phrase can be a bit complex. Although tax deductions can be an economical way to run your small business to the best of its capacity, it can be a hard landscape to navigate\u2014especially if you\u2019ve only ever filed personal tax returns. In this article, we\u2019ll break down the most common business expenses that entrepreneurs can claim, the way these expenses work, as well as some general dos and don\u2019ts of tax write-offs. <\/p>\n In short, any expense that\u2019s required for the purpose of running your business can be deducted as a business expense. The opposite of a business expense is a personal expense, which cannot be deducted. <\/p>\n Sounds simple, right? If it were, this article wouldn\u2019t need to exist. There are many caveats to small business accounting<\/a>, and they can be difficult to navigate. First, let\u2019s go over concrete examples of typical small business deductions available to Canadian entrepreneurs. <\/p>\n Being aware of the specific tax write-offs pertaining to your business can help you plan and remain organized. The below list is not exhaustive but contains some of the most common operating expenses for entrepreneurs. The Government of Canada<\/span><\/a> has a long, albeit still not complete, list of other costs you may encounter. <\/p>\n Bad debt refers to money that you\u2019re owed and haven\u2019t been able to collect. This usually means a service that you have provided for a client and invoiced for but have not been paid for, even with a considerable amount of time passing. For example, let\u2019s say you run a graphic design business, and you designed a website for a client. If the client never responds to your invoice or goes out of business before paying your invoice, you may be able to claim it as bad debt come tax season. <\/p>\n Total amount you can claim:<\/strong> you can claim the full amount of bad debt you are owed. For example, if you are out $10,000, and a debt collection agency was able to collect $3,000 for you, you can claim $7,000. <\/p>\n As a business owner, you can deduct the costs of certain bills, like electricity, water, telephone, and cable, if these expenses enable you to earn business income. However, you must only deduct the percentage of the costs related to running your business. <\/p>\n If your business is run from your home, you will have to calculate which percentage of your utility bills is used in your home office, and what percentage of your phone calls are related to business needs. <\/p>\n Total amount you can claim:<\/strong> you can claim whichever percentage of your bills you use for business operations. For example, if you pay $600 every month towards bills that you use to generate business income 30 per cent of the time, you can expense 30 per cent of $600, or $180 monthly. <\/p>\n If your line of work requires you to pay membership dues or similar fees, then this can be a potential tax deduction. This includes things like a membership in a governing body or association\u2014or even a publication subscription. However, it doesn\u2019t include recreational memberships (such as a gym or athletic club membership). <\/p>\n Total amount you can claim:<\/strong> you can claim 100 per cent of business licenses and dues provided they are used in the operation of your business. If your license is only partially used for your business, you may only deduct that percentage of the business license. <\/p>\n In the government\u2019s eyes, items such as desks, chairs, and computers are considered a capital cost. Capital costs are one-time purchases that are integral in rendering a service. Capital costs generally depreciate over the period of time that you instruct their use. <\/p>\n Capital costs can be factored into your small business deductions, but they must be deducted over a period of several years and not all at once. <\/p>\n Total amount you can claim:<\/strong> you can claim 50 per cent of capital costs for any given year. <\/p>\n In certain cases, you may be able to put a charitable donation towards your business expenses. To be eligible, the donation must have been made through your business towards a registered Canadian charity<\/span><\/a>.<\/p>\n Total amount you can claim:<\/strong> generally, up to 75 per cent of charitable donations are tax deductible. <\/p>\n If you ship packages and other mailable items<\/span><\/a> in your business duties, you are eligible to submit the costs associated with this as a tax deduction. <\/p>\n Total amount you can claim:<\/strong> you can deduct 100 per cent of any delivery fees related to your business that were incurred in the past year. <\/p>\n Certain employee expenses, such as employee<\/span><\/a> salaries, employment insurance premiums, and workers\u2019 compensation, can be deducted. An exception to this is your own salary, which cannot be deducted. <\/p>\n Total amount you can claim:<\/strong> you can claim gross employee salaries, as well as CPP or QPP contributions, EI premiums, workers\u2019 compensation amounts, and parental insurance plan premiums (in Quebec).<\/p>\n You\u2019re eligible to claim any insurance premiums that you incur, as long as it pertains to buildings or equipment you use in the operation of your business. You may be eligible to claim home or auto insurance premiums. However, they must be declared as part of your home expenses or motor vehicle expenses, respectively. In most cases, life insurance premiums are not eligible for deduction. <\/p>\n Total amount you can claim:<\/strong> you can claim any paid insurance premiums in full. <\/p>\n As a small business owner, you are able to deduct any loan interest you have incurred over a period of time provided the loan was borrowed for business purposes. <\/p>\n Total amount that you can claim: <\/strong>100 per cent of business loan interest as long as it was borrowed to generate business income<\/p>\n Depending on the nature of your travel, you may be able to deduct some of the costs associated with operating a motor vehicle on your taxes. However, the amount you are deducting must be specific to the amount you use your motor vehicle for business purposes. <\/p>\n Total amount you can claim: <\/strong>this depends on the amount of time you spend using your motor vehicle for business use only, and whether or not you own or lease your vehicle. For example, if you are using a leased car for business 40 per ent of the time, you can deduct 40 per cent of your monthly lease payment. <\/p>\n Office expenses are one of the most common types of business expenses and include small items such as stationary and stamps. However, it does not include larger-scale items such as chairs or desks or even computers\u2014as mentioned above, those are capital costs. <\/p>\n Total amount you can claim:<\/strong> you can claim 100 per cent of the cost of your office supplies, provided that they are necessary for your work and solely used for business purposes. <\/p>\n If you seek counsel related to the operation of your business, you can deduct the fees paid for these services from your taxes. This can include individuals such as accountants, lawyers, and other professional consultants<\/span><\/a>.<\/p>\n Total amount you can claim:<\/strong> you can claim 100 per cent of professional fees that are related to your business operations. <\/p>\n A percentage of the amount you pay in rent for the property where your business is conducted can be put towards your tax deductions. This is true whether you rent a separate office space or conduct business within your personal living space. However, how you go about claiming this will change depending on which category you fall into. <\/p>\n Total amount you can claim:<\/strong> this is directly related to the percentage of your home used to run your business. For example, if you use 30 per cent of your home to run your business, you can deduct 30 per cent of your rent on your taxes. <\/p>\n Sales tax appears as GST and PST in Alberta<\/span><\/a>, British Columbia<\/span><\/a>, Manitoba, and the Territories, as GST and QST in Quebec, and as HST in Ontario<\/span><\/a>, Prince Edward Island, Newfoundland and Labrador, Nova Scotia, and New Brunswick. Certain businesses must charge sales tax on their services. However, as a small business owner, you are eligible to receive rebates on the sales tax that you pay through something called an input tax credit (ITC). <\/p>\n When filing your small business taxes, it will be determined whether or not the amount of sales tax you have collected is lesser than or greater than your ITCs. If you carry a negative balance, the government will provide you with a sales tax refund. <\/p>\n Total amount you can claim:<\/strong> you can put 100 per cent of the small business taxes that you claim towards your ITC. <\/p>\n When you create a business, certain miscellaneous fees are associated\u2014new entrepreneurs know this all too well. These costs most commonly include the purchase of inventory and equipment that are vital to your business operations.<\/p>\n You can claim these expenses, but only if they\u2019ve been incurred after your business\u2019s start date<\/span><\/a>. The Government of Canada specifies that you must be precise about the start date of your business operations to be eligible for tax refunds. <\/p>\n Total amount you can claim:<\/strong> you\u2019re permitted to claim up to $5,000 in start-up costs. <\/p>\n If you undergo travel that\u2019s related to your small business, you may deduct this expense. This includes transportation, hotel accommodations, as well as meals. A 50 per cent limit will apply to all food and beverage purchases made while travelling. <\/p>\n Total amount you can claim:<\/strong> 100 per cent of travel expenses, 50 per cent of food and beverage expenses. <\/p>\n Although it would be great if small business deductions were all-encompassing, there are some common expenses that are not eligible for tax write-offs. These include: <\/p>\n Once you have narrowed down the type of deductions that you are eligible for, it\u2019s useful to know how to go about submitting them. To claim a small business expense, you will need to have original copies of all of your invoices<\/span><\/a>. Although it is possible to process your taxes yourself, the best idea is to consult a professional such as an accountant<\/span><\/a>.<\/p>\n Tax write-offs work by lowering the amount of your taxable income, which in turn lowers the amount of tax you owe the government. This is because the tax system works on a progressive system, which means that taxpayers pay an amount that is relative to their earnings. <\/p>\n Although the process of taking care of your taxes as a small business owner can be daunting, there\u2019s help available. After all, it only takes the right information to turn an overwhelming situation into an empowering one. <\/p>\n","protected":false},"excerpt":{"rendered":" Tax deductions can help save you and your business money. Learn about the most common business expenses and how to claim them.<\/p>\n","protected":false},"author":5,"featured_media":5166,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"content-type":"","_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_feature_clip_id":0,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_post_was_ever_published":false},"categories":[978],"tags":[147,655,660,713,717],"class_list":["post-5161","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-accounting-and-tax","tag-business-expense","tag-small-business-deductions","tag-small-business-owners","tag-tax-deduction","tag-tax-season"],"acf":[],"yoast_head":"\nWhat can be written off as a business expense? <\/h2>\n
16 common business expenses<\/h2>\n
1. Bad debts<\/h3>\n
2. Bills (i.e., telephone and utilities)<\/h3>\n
3. Business licenses and dues <\/h3>\n
4. Capital costs<\/h3>\n
5. Charitable donations<\/h3>\n
6. Delivery fees<\/h3>\n
7. Employee salaries<\/h3>\n
8. Insurance<\/h3>\n
9. Interest on business loans<\/h3>\n
10. Motor vehicle expenses<\/h3>\n
11. Office expenses<\/h3>\n
12. Professional fees<\/h3>\n
13. Rent<\/h3>\n
14. Sales tax<\/h3>\n
15. Start-up costs<\/h3>\n
16. Travel costs <\/h3>\n
Business expenses that are not eligible for tax write-offs<\/h3>\n
\n
How to submit business expenses during tax season<\/h2>\n
Tax write-offs for small businesses: Dos and don\u2019ts<\/h2>\n
Do: <\/h3>\n
\n
Don\u2019t: <\/h3>\n
\n