Imagine you have poured everything that you have into building your small empire. Your business is up and running and doing really great. Customers are happy. Everything is going as per your plan – until tax season comes keeping you up all night.
You have no idea about what counts as a deduction and how to save your hard-earned money. Good news is that the tax system is your opportunity to actually reduce your taxable income and boost your bottom line. You need the right understanding of which counts as a deduction first.
Once you know enough, you can definitely reduce your tax bill and the financial burden you have been carrying all this time.
Here’s your guide to most valuable tax deductions broken down into easy-to-understand terms to help you save money and focus on running your business.
Home Office Expenses
You may have a spare bedroom in your home used as a dedicated workspace for regular business use. In that case, you might qualify for home office deductions under the Canada Revenue Agency (CRA) rules.
The rule allows you to deduct a portion of expenses including utilities, rent, property taxes, internet, mortgage interest, and maintenance. However, this only applies only to the part of your home you use for work.
If your office uses 10% of your home’s total square footage, for example, you may deduct 10% of eligible home expenses from your taxable income.
Vehicle and Travel Expenses
Do you use your vehicles for client meetings? You may use it for deliveries, or supplier visits. You are eligible for a deduction for expenses like fuel, insurance, loan or lease interest, maintenance, and even depreciation, given that you are the sole owner of the car.
The CRA, however, needs you to keep a detailed log of mileage where you need to note down the distance covered and purpose of the trip. For example, if you drive 10,000 kilometers a year, and out of which 4,000 kilometers are for business purposes, you can claim 40% of your vehicle expenses.
Don’t forget those out-of-town business travels, too. You can deduct hotels, meals, and transportation costs as long as it’s solely for business purposes. Keep those receipts handy if you don’t want to miss out on valuable deductions.
Business Supplies and Equipment
Running a business includes constant investment in supplies. From as little as papers to things like software, computer or machinery, you can deduct the costs. But there’s a small tweak.
While little things are fully deductible in the year of purchase. Bigger purchases work in a bit different way. The Capital Cost Allowance (CCA) lets you deduct a portion each year as the item depreciates.
For example, if you bought a $2,000 laptop, you might write off 20-30% per year instead of the full amount upfront to spread out savings and keep a healthy business finance at the same time.
Employee Salaries and Contractor Payments
As a business, you definitely have employees to pay. Good news is that you can deduct wages, salaries, and even bonuses as business expenses. Also, if you invest in employees’ health benefits and pensions schemes, you can deduct them too. It’s a great way to attract and retain top talent while reducing your taxable income.
You may not have full-time employees but independent contractors working for you. Make sure you maintain a record of their payments using a T4A form. Contractors handle their own taxes. Keeping a clear record helps protect your business from serious miscalculations issues.
Marketing and Advertising Costs
For small business owners, marketing may seem like an unnecessary expense. But it can be an investment, if the Canada Revenue Agency (CRA) lets you deduct the costs. No matter the marketing channel or tactic you use, be it in the form of a Facebook Ad, a business card, or through sponsoring a local event, you can actually reduce your taxable income while increasing your business exposure and growth.
If you are in digital marketing, Google ads to influencer collaborations are tax-deductible, too. Make sure you keep these costs in track, so the CRA can contribute to your business growth.
Business Insurance and Professional Fees
Insurance is essential for small businesses like you. It’s tax deductible, too. You can deduct the costs paid for liability insurance, commercial property insurance, or business interruption interest. Not only does it help keep your small business protected but you can also keep you and your business from unwanted financial stress.
Apart from insurance, professional fees are also tax-deductibles. Whether you hire an accountant to file your taxes or a consultant for expert advice, you can write off those expenses.
Membership fees also count as tax deductions. You can also save your money at tax time, if you invest in protection and expertise.
Rent and Utilities for Business Locations
Renting an office, storefront, or workspace for your small business can help save your money. Also, essential utilities like electricity, water, heating, and phone bills also qualify if they are part of your daily business operations.
Also, renovating your workspace may also help ease the financial burden. Simply put, as long as you keep a track of your expenses, you can save your money on taxes and set your small business up for long-term growth.
Conclusion
Taxes can make or break your small business’s bottom line. They may not be as exciting as running a business, if you don’t pay attention, it can ruin everything you have built from scratch.
Keeping track of deductible expenses is key. Not only does it help reduce your tax bill but it can also improve cash flow.
Feeling overwhelmed? You don’t have to do this alone. Consulting a personal tax accountant in London Ontario is your safest bet. Work with one to customize a tailored business plan to secure your business’s future.