The Most Commonly Missed Small Business Deductions | Tax Saving Tips for Canadian Small Business Owners
Missing tax deductions is like setting fire to multiple hundred dollar bills. You need to read this blog before you submit ANYTHING to your accountant this tax season because you could be overpaying your hard-earned money for nothing.
Whether you’re just starting to compile your receipts or are in the final stages of reconciling transactions I need you to hold up for a minute and make sure you’re accounting for these commonly missed tax deductions.
What is a tax write-off
New to the small business owner thing? Let’s start here.
A tax write-off, or tax deduction, is something you can claim on your tax return that can reduce the amount of money you owe the government. They come in a series of pre-determined categories created by the CRA to help you keep more money in your pocket at the end of the year.
Small Business Expenses List
Your business naturally incurs expenses that are required to keep its doors open. Things like advertising, fuel costs, insurance, legal and accounting fees, and wages are just a few common expenses that you’ve probably had to fork out some cash for.
Lucky for you, the money you’ve spent on those critical services can be claimed and help reduce your tax bill.
The full list of eligible business expenses can be found here on the CRA website, but a few are commonly overlooked.
Commonly Missed Small Business Deductions
Business start-up costs
These are expenses you incurred to set up your business that may include incorporation or registration fees, lawyer fees, computer equipment, and furniture.
Professional dues
Also include any memberships or licences required to operate your business in your industry.
Bank and interest fees
Not all debt is bad, and some of it comes with interest fees that can be written off. Make sure you account for the bank and interest fees that you pay for all your business bank accounts, including business loans or investments
Motor vehicle expenses
You have two options here: 1) using your personal vehicle as a sole proprietor, and 2) using your personal vehicle as a corporation.
With option #1, you can only deduct a portion of vehicle expenses directly related to earning business income. In this case, your magic formula is… (# of kms driven for business/total #kms driven for the entire year) x total vehicle expenses.
With option #2 all you need to do is keep a mileage log that details all business trips. You can submit that mileage log to the corporation and the corporation will reimburse you at the prescribed automobile allowance rates (no tracking of vehicle expenses or keeping receipts required).
Home office expenses
This is a specific calculation based on the measurement of your workspace at home. Here’s the formula:
Measure the square footage of your “home office,” be it your spare room, bonus room, or garage.
Take the size of your workspace divided by the total size of the home and get that percentage.
Tally up the costs of running your home. For example, utilities, internet, rent, insurance, maintenance, etc.
Take the percentage from step 2 and multiply it by the sum of all costs in step 3 to get your home office deduction.
If you don’t want to do math, send the size of your office along with copies of your bills to your accountant to take care of it for you!
Meals & entertainment and client gifts
Here we’re referring to taking current and potential clients out for coffee or lunch and sending them gifts to make them feel appreciated. These are all allowable business expenses. The only caveat: be reasonable with your gifts. If you’re in the first year of business and you’re gifting Tiffany & Co. bracelets to multiple clients, the CRA might have some Q’s for you.
Continuing education / Networking events
Yes, we're talking paid courses, workshops, events, and conferences you attended to learn or uplevel your business skills and grow your business networks. Keep those ticket stubs and course registration confirmations as those expenses can be written off!
Cellphone
It’s common to have only one phone these days. So if you’re using your cellphone to conduct business, figure out how much you're using for business vs. personal. You can deduct the business portion only.
How to write off business expenses
If all of this seems totally overwhelming, just know we’ve all been there. Most of y’all went into business to offer your unique talents and services… not to become a lowkey finance wiz.
I created a program specifically for budding and seasoned Canadian entrepreneurs to learn the ins and outs of tracking, categorizing, and writing their expenses off in a way that makes sense of your cents.
It’s called the Bookkeeping Bootcamp and it’s a place where like-minded entrepreneurs come to learn, grow and keep more of that dough.
Come see how business owners, just like you, are becoming confident, empowered, and excited about their biz finances!
