So, you’re a small business owner and want to save big time on taxes. One of the best ways to do this is by taking advantage of tax-deductible business expenses. The great thing about these types of expenses is that they can be deducted from your taxes. This means that you have more money available in your business account to spend on marketing or other important things. For more details, you can approach Yogi & Associates because we have an expert accounting team in Mississauga, Ontario.
Many businesses are unaware that they can claim some expenses on their taxes. While you may already know you can write off rent and office supplies, there are many others you should be aware of.
As you know that taxes can be complicated. That’s why we put together this comprehensive guide to help you understand some common business expenses you can claim as tax-deductible. You can easily find us in Mississauga or CALL US TODAY to chat about your business finances.
Business Expenses: Essential Guide
What are tax deductions?
A tax deduction is a sum of money the Canada Revenue Agency (CRA) allows you to subtract from your total taxable income. Furthermore, if you qualify for enough tax deductions, you can reduce the amount of taxes you pay for the year.
For more information about how you can claim your business expenses, please check out our blog, Which 4 Business Expenses You Can Claim: A Perfect Guide
How to keep track of your business expenses
The CRA encourages small businesses to keep a record of business expenses. However, any business cost that you want to claim as a tax deduction should be supported by documentation. You can keep a record of your business expenses through:
- Sales invoices
- Purchase and sales agreements
- Cancelled cheques
You can also use accounting or bookkeeping software to record your business transactions and expenses. Many apps have tools to store, sort, and organize your receipts, invoices, and other documentation. You can also hire our professional accountant in Mississauga to ensure you’re accurately tracking expenses. In this way, you can easily manage and track your business transactions.
- Make sure to keep track of and claim every business expense, even the small ones. Every receipt matters, and together, they may even knock you into a lower tax bracket.
- Claim as much business expenses as possible. This way, you will reduce the amount of tax you pay for the year.
- You can only deduct part (for example, 20% or 50%) of the costs you spent running your business.
What are the most common tax deductions for small businesses?
1. Start-up costs
Your business start-up costs can include anything your business needs to begin. Such as from equipment, machinery, and supplies to legal and accounting advice. Thus, you can claim start-up cost as a tax deduction, if business expense begins during the tax year or fiscal period your business started.
2. Office Expenses
The cost of small items such as pencils, pens, stamps, paper clips, and stationery is also tax-deductible. In addition, you claim the cost of the cleaning supplies. However, desks, chairs, filing cabinets, and calculators are not included as they are capital items.
3. Home office expenses
Sometimes you have to work off-hours from home. In this case, Canada Revenue Agency allows you to deduct 20% of your home office-related expenses. For instance, if your home is 2,000 square meters and your office is 400 square meters, your office is 20% of your home’s total size. Therefore, you can deduct 20% of your home office-related expenses on your tax return.
4. Meals and entertainment
You can deduct 50% of the amount that you spend on meals and entertainment. For instance, if you take your client to lunch, you can deduct 50% of the cost from your business income.
When you go for a business tour, you can write off 50% of the cost of meals, beverages, and entertainment.
6. Salaries, wages and benefits
7. Telephone and internet
Telephone, cell phone, cable and internet are all tax-deductible. These expenses can be deducted only if they are related to business activities.
8. Advertising fees
These consists of expenses for ads on Canadian radio, television stations, and newspapers. Moreover, digital advertising is also tax-deductible. You can also claim the cost of registering your website’s domain name and web hosting.
9. Motor vehicle expenses
You can claim round-trip mileage and parking fees on business-related meetings and trips. Moreover, you can also claim license and registration fees. Some other motor vehicle costs that are deductible include fuel and oil costs, insurance, maintenance and repairs, etc.
10. Professional fees
You can claim small business expenses such as legal, accounting, and bookkeeping fees.
The utility expense that is tax-deductible include costs for heat, electricity, insurance, maintenance, mortgage interest, and property taxes. Furthermore, for home offices, deductions must be in accordance with the actual size of the space you’re using for your business.
The rent paid for property used in your business is tax-deductible. It means you can claim the rent for the land and building of your office as tax-deductible.
Important! You can never claim your personal expenses as tax-deductible business expenses.
13. Business supplies
The expense for items that your business uses to provide goods or services is also tax-deductible. For example, the tools used by a plumbing service.
14. Independent contractors
If you hire independent contractors or freelancers for business purposes, such as writing posts for your website blog or taking products for an online store, then this cost is a tax deduction.
We are here to guide you!
At the end of the day, it all comes down to your finances. It means by understanding what you can write off, you’re putting yourself in a better position for long-term success. That’s why it’s important to learn about these tax-deductible business expenses and get proactive about them. Therefore, businesses that claim their tax-deducible business expenses are able to save money on their taxes. And this ultimately translates into more money in their pocket.
We hope that this guide has provided you with enough information on tax-deductible business expenses. If you have any questions about tax-deductible business expenses, don’t hesitate to contact Yogi & Associates. Our accounting team in Mississauga will give you complete guidance about tax-deductible business expenses.