Most business owners understand that profits are as important as revenue. However, only a few self-employed taxpayers understand the complexities of taxation and how to minimize taxes by claiming all eligible expenses. As the April 30 deadline for filing income taxes (June 15 for self-employed taxpayers) approaches, keep reading to find tax tips on business expenses you can claim.
The general rule of thumb is that you can claim related business expenses you incur while running a business. These expenses must be reasonable and solely for business purposes.
So a quick check is to ask yourself if an expense is needed to earn business income. If yes, then the expense is most likely tax deductible.
If you run a business full-time or part-time or are a freelancer, here are some expenses you can claim to cut down on income taxes.
As a business owner, You need to do what it takes to get your business out there. Gaining exposure in your industry may require advertising and marketing. You can claim the related expenses when you advertise through Canadian newspapers, television, or radio stations.
Note that for you to claim advertising fees, you are required to meet the Canadian content or Canadian ownership requirements. The advertising expenses you claim are restricted depending on your target audience and the original editorial content.
If you reported a potential client or customer’s payment as part of your income, and you determine that it is highly probable you will not receive this amount, you can claim the bad debt expense.
Office expenses, stationeries, and supplies
Expenses for small items like pens, paper clips, envelopes, supplies, and general stationery may seem immaterial, but the costs add up over time. Keep the receipts for this type of expense and claim them when filing your taxes.
Some businesses have significant delivery and freight-related expenses. An example of such a business is retail stores. Service businesses may have less logistic costs than retail or product businesses.
Regardless of the type of business you run, if you incur delivery expenses for goods and inventory or office supplies, you can claim these expenses when filing your income taxes.
Business fees and licenses
Professional bodies govern some business industries and require annual membership fees or licenses.
Examples of allowable licenses are vehicle licenses, beverage licenses, and trade and association memberships. You can use the expenses for these business fees and permits to reduce your profits for tax purposes.
You can also claim certain subscriptions required for business purposes or business taxes. Examples of business taxes you can claim are land transfer tax, hospital tax, health and education tax, and other eligible municipal taxes.
When you hire professional services for consulting, taxation, legal, or accounting, you can deduct these expenses from your total gross income.
Traveling and mileage expenses
Some business activities involve traveling or moving from one location to another. If you incur costs for business travel purposes, you can claim these expenses to reduce the tax you will pay to the Canada Revenue Agency. Generally, eligible travel costs you can claim are for accommodation, transportation, and meals.
However, you should note that certain limitations apply to the amount you can claim for meals. Generally, the CRA applies a 50 percent limit to the cost of meals, entertainment, and beverages incurred for business travel.
Your mileage for car usage also counts as an expense you can claim when filing your taxes.
Business property and workspace expenses
If you pay property tax for a business workspace, you can claim this amount. You can claim the business proportion of property taxes for workspace in your home.
Other expenses incurred for workspaces, such as rent, utilities for electricity, gas, long-distance phone calls, water, and cable, can reduce your income for tax purposes. You can only claim phone bills if they are solely for business purposes. This also applies to other home office space expenses.
Interest and Bank Charges
Interest payments on loans for business purposes are eligible for tax purposes. For example, if you take out a loan to purchase a business property or carry out business operations, you can claim some interest-related payments and charges incurred in accessing financing.
What expenses can you not claim for tax purposes?
You cannot claim costs incurred to purchase a capital property or enhance the value of a capital property. Eligible expenses must be current and meet specific criteria as business expenses. Expenses for office items such as chairs, desks, and filing cabinets that last more than a year and can be depreciated are not claimable.
Penalties, fines, or interests for income tax or any other law-related offenses are not eligible claims to reduce your taxes. For example, if you failed to file your income taxes or pay taxes due on time, any fees you incur for this reason cannot be claimed as an expense.
Need to file your income tax and claim business expenses as a self-employed taxpayer, contact the team at DW & Associates, Chartered Professional Accountants. Our tax and accounting experts will guide you on how to claim eligible expenses and reduce business taxes.