As a small business owner, the number of tax deductions you are entitled to is impressive. You simply need to be aware of them and start preparing your documents as soon as possible to ensure your requests are approved. Gather your paper work, receipts and ledgers TODAY to guarantee you are prepared when it is time to file your taxes. To simplify your task, we have included below the list of required materials you need to claim these common tax deductions.
HOME BUSINESS EXPENSES
If you conduct your business from the comfort of your own home – running an online business from your bedroom, design and make clothes in the common area of your home, or provide legal services in the den – yes you can qualify for this deduction.
TIPS & RECOMMENDATIONS:
- You are required to actually live at that location.
- The amount of deduction you qualify for will be based on the percentage of your home that you can allocate to your home business. Let’s say you run an online business through your bedroom, which is 10 by 10 feet in size, and your home is 2000 square feet then your business-related home expenses would equal to 5%. The formula is simple it’s the work space divided by the total area. You would then take this percentage and apply it to your allowable household expenses that pertain to your business such as utilities.
- Some small business owners like to dupe the system by purchasing cheap homes for office space and then “pretend “that they live there. If you are investigated and get caught in your lies be prepared to suffer the consequences
- NOTE: Auditors are really strict when it comes to this deduction and it could be difficult to claim. Your home must be your principle place of business. This means that it is your main source to earn business income and that you meet with clients and customers in your home regularly. Do not confuse this with having just a “home-office” (a space with a desk where you catch up on work over the occasional weekend or so).
IMPORTANT DOCUMENTS: To earn this deduction it is typically best to keep records of all business-related activities that occur within your home, including appointment ledgers and supply order forms with your home address on them.
WINE AND DINE EXPENSES
If your line of business requires you to take out clients, customers or investors to dinner in order to earn or negotiate business then you can claim a deduction on all meals.
TIPS & RECOMMENDATIONS:
- The entire meal cannot be written off. The CRA allows up to 50%, in deductions, of each meal since it is assumed that you are eating as well. But you can essentially write off half of whatever the meal (or event) costs with tip included if it is just you and a business associate.
- NOTE: It is essential that business matters must be discussed in order to claim this deduction, either during or after the meal/event. In either case the CRA is really strict with this deduction and you must have receipts in order to claim this, no exceptions.
IMPORTANT DOCUMENTS: To avoid an investigation (which is common with this deduction) is to not only save every receipt and make photocopies, but to include the following information on the back of the receipts: date, names of people present for the dinner meeting for example, what business-related matters where addressed/discussed, and why this type of meeting was found most appropriate.
TRAVEL EXPENSES
Small business owners can also receive tax deductions for a good portion of their traveling expenses that they spend going on business trips, conferences and meeting up with clients or customers.
TIPS & RECOMMENDATIONS:
- NOTE: There is a limit on the amount you can deduct in this category however. Make sure you visit the CRA website to ensure you don’t exceed that maximum.
IMPORTANT DOCUMENTS: You are eligible to receive a deduction on public transportation passes, taxi fares, flights, vehicle rentals and gas and repairs if you choose to use your own vehicle for business travels. This includes organizing all of your receipts and documenting the date, mileage, and the client you went to visit.
Feel free to visit the business expenses section of CRA website for additional information.
This post was based on the information provided by Carol Wilson’s post on this topic. Wilson writes for business insurance reviews and she contributes articles about a variety of marketing, business, stock market, small business topics. She can be contacted at wilson.carol24@gmail.com.
