Top 3 Tax-Deductible Business Expenses: Free Guide

by | May 26, 2022

Tax deductions are a way to reduce your taxable income. For every dollar you earn, only a certain tax percentage applies. Moreover, tax deductions help make tax time less stressful by reducing the tax dollars you pay.

Taxes can be a significant expense for any business owner in Canada. It means tax deductions are an essential element of tax planning strategies. And it’s crucial not to overlook any of these tax-deductible business expenses. The Canadian Revenue Agency (CRA) takes tax deductions very seriously. This article will discuss the three most common tax-deductible business expenses you can claim in Mississauga. These include business start-up costs, business travel expenses, and insurance expenses.

This might be the right post if you’re still unclear about what expenses are tax-deductible in Canada. This guide outlines some standard costs you may have overlooked. For more information about business expenses, CALL US TODAY. We offer bookkeeping services at affordable prices. In addition, our bookkeeping team at Mississauga will help you find your tax deductions. And will also guide you about updating your books. So, let’s give read to this article!

1. What are Tax Deductions?

A tax deduction also called a tax write-off, is any legal item you can claim on your taxes that lower your taxable income. Simply put, tax deductions assist in lowering the amount of tax you must pay. In Canada, federal and provincial deductions help you to reduce your liability for tax.

2. What are Business Expenses?

All the costs you spend to operate your company act as business expenses. Thus, you can subtract these costs from your revenue. Doing this can lower the taxes you owe on the company’s income. Additionally, you can reduce your tax burden and grow your company at the end of the year. The following are the three most common tax-deductible business expenses in Canada:

  1. Business Start-up Costs
  2. Insurance Expenses
  3. Business Travel Expenses

1. Start-up Costs

Any start-up costs you spend when opening a business in Mississauga are tax-deductible. Thus, the sum you pay to launch your business is a start-up cost. The equipment you need for your business to begin operating is also the start-up cost.

“For a nation to try to tax itself into prosperity is like a man standing in a bucket and trying to lift himself by the handle.”–Winston Churchill.

A start-up expense must start during the tax year or fiscal year in which your business began. In this way, start-up costs can qualify for a tax deduction. Thus, any eligible start-up expenses must occur after the official launch of a business.

Choosing Your Business’s Start Date

Establishing your company’s official start date for tax purposes can be a little challenging. The day you make your first sale or begin working at your company isn’t necessarily the first day of your business. Instead, the founder of a day business engages in an activity to start the company. The following examples show your intention to launch a business:

  • The day on which work at a business location officially starts
  • When you make plans for the shipment of supplies/materials
  • When a business owner purchases stock
  • The day that the proprietor initially markets their company
  • Beginning of staff training
  • Discussion of early contracts

Note:  According to the CRA, you must have operated a business during the fiscal period in which the charge was made. In this way, you can deduct it as a start-up cost from your income tax.

For more information about tax-deductible business expenses, please click here to view our blog, Business Expenses That Are Tax-Deductible In Canada

2. Insurance Expenses

Insurance expenses are the costs you can write off for all ordinary commercial insurance premiums you pay for different things. For example, for any buildings, machinery, or equipment you use for your company. These are known as insurance expenses. However, neither your personal health nor dental insurance premiums are tax-deductible business expenses.

Tax-deductible Business Expenses

What are Tax-deductible Insurance Premiums?

Business insurance premiums that are tax-deductible are:

  • Property: This type of insurance protects your business property, such as your building, equipment (e.g. computers), furnishings, and supplies.
  • General Liability:  Gives insurance packages for different purposes. For instance, for injuries to customers, suppliers, employees, etc., to your property. It also protects when you or your staff are conducting business off-site. And there, you may cause an unintentional injury to a third party or their property.
  • Product Liability: This secures you if a product you manufacture or sell is defective. Or if the assembly instructions/warnings are incorrect.
  • Professional Liability:  Protects a customer’s complaint that you failed to deliver on what you mentioned in a contract. Or you mismanaged a project. In both conditions, professional liability insurance will cover legal costs and expenses.
  • Commercial Auto Insurance: This insurance protects your company’s vehicles against any damage that happens to the vehicle if driven by you or your staff for routine business.

Point to ponder! 💭

Many small businesses in Mississauga use Ordinary commercial insurance premiums. These premiums help to protect the assets from damage due to fire, theft, or other risks linked with the company. Moreover, the premiums paid for liability protection (i.e., worker’s compensation) are also ordinary commercial insurance premiums.

3. Business Travel

If you don’t know how to maximize your travel expenses, they can quickly add up. You should always keep track of your travel expenses as a business owner. Additionally, confirm that you are claiming legitimate costs on your tax return each year. When you travel, the cost of meals, drinks, and entertainment are only subject to a 50% tax. The following conditions must be met for your trip to count as business travel:

  • The business trip must be necessary for your business.
  • The trip must take you away from the city in which your company conducts its business.
  • The traveling time should be longer than a normal work day, making you sleep/rest on the route.

1. Car expense

Whether it’s your car or a rental, you can deduct any reasonable out-of-pocket costs associated with your business trip, including gas, insurance, and maintenance.

2. Airfare

If you travel by plane for business purposes, you can deduct the cost of your flights and any applicable fees. Such as baggage fees and airport parking.

3. Hotels

You can deduct the cost of your hotel room and meal expenses for business conduct during your trip. However, these expenses will not be deductible if you stay at a relative’s home while on a business trip.

4. Meals

You can deduct 50% of meal expenses incurred during a business trip as long as they were incurred while traveling away from home overnight (or for more than 24 hours).

3. How Should You Keep Track of Your Books?

Having correct, up-to-date books is essential to your company’s performance.  Thus, you can manage your books and tax deductions by having a bookkeeper. In addition, working with bookkeepers improves your financial management and guarantees that your records are updated consistently from month to month.

You can also manage your books on your own. But if you are looking for a year-round, accurate bookkeeping solution that is stress-free, Yogi & Associates can support you. Our bookkeeper will help you with all your corporate taxes and bookkeeping issues. So, feel free to contact us anytime.

Final Thoughts!

In a nutshell, tracking your tax-deductible business expenses will help save you money and time. Therefore, it is important to keep track of your tax-deductible business expenses in Canada. Because the more you understand them, the less money you will have to pay in taxes. 

Moreover, you can save much money with proper understanding and communication with your tax agent. For this purpose, you can take advantage of our bookkeeping services for your company at Mississauga. Our expert bookkeeper will help you maintain your books. And will also provide you detailed information on deductible expenses in Canada. So contact Yogi & Associates today and let us take care of your business matters.

Get in touch with Yogi & Associates!