Tax Deductions for Home Based Businesses
Why Everyone needs a home-based Business!
It’s that time again! Tax time! Technically you can file your taxes as soon as you have all the paperwork you need, which can be as early as the beginning of January, but sometimes it takes a while to get everything together. By mid February, most of us are ready to file and filing is much easier because that’s when you can file online with the CRA using Netfile https://www.canada.ca/en/revenue-agency/services/e-services/e-services-individuals/netfile-overview.html).
So that makes right now a great time to go through your business expenses and see if there are things you can “write off” as a small business operator. What’s a write-off? It is a tax deduction that lowers your taxable income.
For example, if you made $65,000 last year and spent $15,000 on your business, your taxable income would be $50,000 and you would owe less tax because of all your write-offs. This can make tax time a lot more fun for small-business owners!
What to Deduct?
There are a lot of different deductions you can claim, some of them are obvious, but many of them really only apply to certain people in certain situations, so I’m just going to talk about the ones that apply to *most* small business owners.
Home Office: You’ll claim your home office and related utilities (and services like your phone/internet) as business-use-of-home expenses. Depending on how much of your home you use as an office, you can claim that amount as a business expense. For example if you live in a 1200 sq ft home and your home office is 25% of that, you can claim 25% of your rent, heating, internet, water, garbage disposal, etc. costs
Professional fees: You can deduct the membership fees for professional organizations that you belong to because of your business.
Vehicle: You need to keep meticulous records and receipts to be able to claim your vehicle. The CRA says, “You can deduct motor vehicle expenses only when they are reasonable and you have receipts to support them. To get the full benefit of your claim for each vehicle, keep a record of the total kilometres you drive and the kilometres you drive to earn business income.”
Keeping track of all your travel might seem tedious, but if you keep your logbook in the vehicle and make a habit of writing in it, claiming the deductions will be very easy come tax season.
Travel: You can claim a portion of your travel costs on things like public transport, meals, and accomodation.
Donations: If you made donations to charity in cash, you can claim that. You can also claim the dollar amount of gifts you donated. Donating gifts to charity is great publicity too! Win win!
More Resources for Small Business Tax Deductions
For a very full, detailed list of deductions that can apply to your taxable income, the CRA has a webpage for you to check out.
Business Expenses - Canada.ca (link: https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/sole-proprietorships-partnerships/business-expenses.html)
Another great resource that outlines what you can and cannot claim is found here: The Comprehensive List of Small Business Tax Deductions (link: https://blog.wagepoint.com/all-content/the-comprehensive-list-of-small-business-tax-deductions)
One last thing to mention is that if all this tax stuff makes your brain hurt, you can always hire an accounting professional to help you… And did I mention that that’s tax deductible too?
Are there any deductions I missed that you claim every year for your small business? Are there any you didn’t know about that you will be claiming for the first time this year?
Let us know in the comments!
