Save on Taxes with Business Expenses
Common Business Expenses to Save on Taxes
Spending money is never fun, but according to Roman Playwright, Titus Maccius Platutus, “you must spend money to make money”. It is also very important that you track these business expenses as they will reduce the taxes you owe. What expense can I claim, you ask? It is tricky, and we’d like to share with you a few tips to help you understand what can be claimed. Our goal is to help you maximize your return while still being compliant. If you require help filing your corporate or individual taxes, please book an appointment with us.
Here are some common business expenses you can use to save taxes:
Advertising and Promotion:
You can deduct expenses for advertising and promotion including Canadian newspapers, TV, and radio stations as well as digital marketing on LinkedIn, Google, and Yelp.
Restrictions: If you advertise with a foreign broadcaster such as ABC or CNN, you cannot use it as an advertising expenditure.
Business start-up costs
Such as incorporation costs, initial cost of goods sold (inventory), business set up fees, accounting software.
Business tax, fees, licenses, and dues
You can expense some business tax and annual license fees that are required to run your business.
Restrictions: You cannot claim income tax paid.
Delivery, freight, and express
If you must post products to customers or mail anything on their behalf, postage and shipping fees are deductible
Any commercial insurance premiums on buildings, machinery, and equipment used in your business.
Restrictions: You cannot claim life insurance premiums unless the policy is being used for collateral in a loan related to your business.
Interest and bank charges
Bank fees such as wire fees, monthly account charges and interest on loans for the business such as credit card interest or small business loans.
Legal, accounting, and other professional fees
Business, accounting, and legal consulting services that you use for your business can be used as an expense.
Example: accounting services to file your tax returns, HST/GST, T4s, bookkeeping services or if you need consultation for intellectual property.
Restriction: Legal, accounting fees for purchasing a capital property (boat, office building). Add this to the cost of the property and expenses per the CCA (Capital cost allowance).
Meals and entertainment (allowable part only)
You can claim 50% of food, beverages, and entertainment expenses.
Example: building relationships by taking clients out to dinner, tickets for entertainment or sporting events/cover charges.
Pens, pencils, stationary.
Restrictions: Assets such as desks, chairs – these will have to be capitalized and expensed per the CCA.
This is an expense you pay ahead of time. You can only claim the expenses that have already been incurred.
Example: If your fiscal year end is December 31, 2020 and you pay a full year of rent on June 30, 2020, you can only deduct one-half of this rent as an expense in 2020. The other half would be an expense in 2021
Salaries, wages, and benefits (including employer's contributions)
You can claim gross salaries and benefits as an expense.
Restrictions: If you own the corporation, you can’t claim the dividends! Owner dividends are considered after tax income and are treated differently.
These are costs that are required indirectly to perform the services or provide goods. For example – mop & bucket for a cleaning service
You can deduct travel expenses you incur to earn business and professional income. Travel expenses include:
public transportation fares – Uber, Lyft, Taxi, Public Transportation, Airfare
Business Use of Home expenses
If you use your home as an office, you can claim only a portion of your home expenses as business expenses.
Example: Home Insurance, Mortgage Interest, repairs & maintenance, property tax, rent, utilities, telephone, internet
Restriction: You cannot claim the principal payment of your mortgage as the house is treated as capital asset (and needs to be expensed per CCA)
If you use your personal vehicle for work, you can claim only a portion of vehicle expenses.
Example: gas, insurance, repairs & maintenance, license renewal fee, lease payments, interest
Restrictions: if you purchase your vehicle, you can only claim the interest portion of the vehicle payments. You cannot expense the principal payments.
Need help with your Business Expenses?
Please note that it is not over when you file the tax return! CRA has up to 7 years to audit you so be sure to keep your receipts in a safe place. AgileCPA recommends taking a photo of your receipts and uploading to cloud based storage. You can separate the receipts alphabetically or by year. We also advise you to log your expenses in excel or an accounting software on a regular basis, so you do not have to go through 12 months of receipts and bank statements at year end.
We hope you found this guide useful. Please review our services for your accounting needs and let us know in the comments if there are any accounting/business related topics you’d like to see from us.
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