Many business owners are not aware of the tax write offs that can be deducted for tax purposes. Deductible expenses helps to minimize your taxes, it is often overlooked which expenses should be considered. In this blog, we will outline some the top deductions you should be aware about.
Legal and Accounting Fees
Many business owners pay there accounting and legal fees personally although the purpose is for business. By paying with a personal bank or credit card, the transaction is often missed during the bookkeeping process for the business. Not only is the annual accounting fees deductible expense but so are the incorporation costs. Next time make sure you pay with your company bank or credit card. In case, you paid personally, have the corporation reimburse you tax-free.
There mainly two scenarios we encounter with clients, either the vehicle is owned personally or corporately. Each has a unique treatment and set of guidelines as tax write offs.
If the vehicle is owned corporately, the corporation will pay for all expenses to maintain the vehicle. This generally includes the following:
- Repairs and Maintenance
- Registration fees
- Parking fees (business purposes only)
- Toll-routes (business purposes only)
- Depreciation (tax calculation)
- Lease payments (if leased only)
A logbook must be kept for all the mileage driven with the company vehicle. At the end of the year a standby charge and operating cost benefit calculation is done for all the personal kilometers driven with the company vehicle. This calculation is added as a taxable benefit to your personal income taxes.
If the vehicle is owned personally, you will pay for all the expenses to maintain the vehicle yourself NOT the company. However, you are entitled to a tax-free car allowance which the corporation will pay and you receive it tax-free. No receipts are required only a log book of all the mileage driven for business purposes with your personal vehicle. The current rates for 2016 are $0.54 cents for the first 5,000 KM driven and $0.48 cents for kilometers driven onward.
Work-in-home Office Space
If you use work space at home and 50% or more of the time it is used to do the main work or meet with clients, you are eligible for this expense. The work space used divided by the total livable space available in the home (square feet) multiplied by the total home expenses is a deductible expense. There are also other methods that can be used. The most common home expenses are:
- Mortgage Interest
- Property taxes
- Home insurance
- Repairs and Maintenance
- Phone line, fax line and internet
- Condo fees
- Hydro and Utilizes
Be very careful with home capital expenditures as they can be denied in an audit as tax write offs.
Capital Assets used in Business
Assets purchased for business use are not 100% deductible in the year they are purchased. Instead they are depreciated at certain rates as per the income tax act. However, you still get the full benefit in terms of the tax-deduction and HST input tax credit over a period of year(s). The most common assets found in businesses and there rates are as follows:
- Furniture and Fixtures (20%)
- Computer Equipment (55%)
- Computer Software (50-55%)
- Vehicles (30%)
- Building (4%)
It is a popular guideline to purchase assets towards the end of your fiscal year. The reason for this is because in the first year of depreciation, you only get to claim 50% of the maximum depreciation rate.
Advertisement and Marketing
In today’s competitive market, all businesses use many mediums to promote their businesses. Many clients forget to deduct these costly expenses as tax write offs, especially in the start-up phases. Most expenses related to advertising are fully deductible expenses, common expenses are:
- Google AdWords
- Yellow Pages
- Web Site Hosting
- Website Costs
- Web Designer fees
- Online advertising
- YouTube Costs
- Social Media Costs
Meals and Entertainment
You are allowed to deduct 50% of the meals and entertainment costs you incur for business purposes. Taking a client to lunch and paying from your business will allow you to deduct 50% of the cost for tax purposes. In addition, you can claim an HST input tax credit for 50% of the amount as well.
For specific scenario’s you are eligible to deduct 100% of the cost, most common are the following:
- Six special events such as birthdays, religious holiday, company events etc.
- Fundraising for a registered charity.
Many business owners pay medical benefit plans personally; however, you can obtain private health care premium packages for your corporation. These premiums can also cover your spouse and dependents and is fully a deductible expense for income tax purposes. There are many other medical related tax write offs you can also deduct.
Ensure on your next year end you discuss these top tax write offs for your business with your tax-accountant. Always make sure you keep proper supporting documentation in the event of an audit.
The information provided on this page is intended to provide general information. You should consult with a tax professional to full determine the scope of your situation, Gurrai Birdi and Birdi Chartered Professional Accountant shall not be held liable from usage of the information provided on this page.
Author: Gurrai Birdi, CPA, CGA, MBA
Gurrai Birdi is a Chartered Professional Accountant (CPA, CGA, MBA) who has years of extensive experience in public practice working with highly satisfied individual and business clients to ensure there taxes are minimized and accounting needs are fulfilled.