Making every penny count is usually priority one for most small businesses. Money doesn’t grow on trees, and you’re going to need to budget correctly if you want to make it to year two and beyond. Luckily, there are a number of deductible business expenses that can really help you out when tax season comes around.
How Do Deductible Business Expenses Work?
Also called tax write-offs, deductible business expenses allow you to reduce your taxable income and potentially lower your tax bracket too.
For example, let’s say you earned $50,000 over the course of the year. If you deducted $10,000 in eligible expenses, your taxable income would only be $40,000, helping you stretch that money even further.
One last thing before we move on:
Current vs. Capital
When it comes to business, generally, any reasonable expense incurred to earn income, is deductible. Outside of that, there are two categories that an expense can fall into: current, which is deductible, or capital, which is not.
A capital expense is something that extends the useful life of your property, gives a lasting benefit, or improves it beyond its original condition. For example, replacing wooden stairs with concrete steps.
A current expense is one that usually recurs after a short period of time. It can temporarily increase the market value of the property, but isn’t a major factor. For example, repairing wooden steps (instead of replacing them).
For more on current vs. capital expenses and the questions you should be asking yourself, check out the article on the Canada Revenue Agency’s website.
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6 Deductible Business Expenses
There are more than a few business expenses that people are surprised to learn are deductible. Here are just a few:
Advertising through non-Canadian publications and broadcasters can mean limiting, or even fully eliminating, any tax write offs. However, if you choose to advertise through Canadian newspapers, televisions, radio stations, or other platforms, you can claim these expenses! Just make sure they meet certain Canadian content or Canadian ownership requirements.
This is a debt owed to you, but remains unpaid after you have exhausted all means to collect it. bad debt is deductible if:
- You had determined an owed amount is a bad debt in the year.
- You had already included the receivable in income.
Maintenance and Repairs
As mentioned above, any labour (excluding your own personal labour) or material costs can be dedicated if:
- It is done to property you use to earn income.
- The cost is not of a capital nature
- The cost has not been reimbursed by your insurance company.
Speaking of insurance, you can deduct all ordinary commercial premiums you incur on any building, machinery, and equipment you use in your business.
Small items, such as pens, pencils, paper clips, stationary, stamps, and more, can be deducted. However, there are items that are considered capital expenses, such as calculators, filing cabinets, chairs, and desks.
Since they act as your office, co-working space is considered a tax deductible expense.
We really just scratched the surface here and for anyone making their way as an entrepreneur, you really need to head over to the CRA’s full list of deductible business expenses.