Running a business in Canada can be challenging, but knowing how to save money through tax write-offs can make a big difference. Here’s an easy-to-understand guide to help you reduce your taxes and keep more money in your pocket.
- What Are Write-Offs?
Write-offs are expenses related to running your business that you can subtract from your income to lower the amount of taxes you pay. Common examples include:
- Office Supplies: Items like pens, paper, and notebooks.
- Home Office Expenses: If you work from home, you can claim a portion of your rent, utilities, and internet costs.
- Travel Costs: Flights, hotels, and meals during business trips.
- Vehicle Expenses: If you use a car for work, you can claim gas, insurance, and maintenance costs.
- Marketing Costs: Things like social media ads, websites, and flyers.
- Keep Good Records
The key to claiming write-offs is keeping proof of what you spent. This means saving:
- Receipts
- Bank statements
- Mileage logs (if you use a car for work)
Use a simple app or software to stay organized. This will make tax time much easier.
- Meals and Entertainment
If you take a client out for lunch or coffee, you can write off 50% of the cost. In some cases, like meals provided for employees working long hours, you can claim 100% of the cost.
For truck drivers on long-haul trips, 80% of meal costs can be written off.
- Using Your Car for Business
If you use your car for work, you can claim:
- Gas
- Insurance
- Repairs and maintenance
- Part of your car payments (up to CRA limits)
For example:
- The maximum monthly lease you can write off is $1,100.
- If you bought the car, you can claim a portion of the cost (up to $38,000 for regular vehicles or $61,000 for electric vehicles).
- If you’re reimbursing employees, you can pay 72 cents per kilometre for the first 5,000 km and 66 cents after that.
- Working from Home
If you have a dedicated workspace at home, you can claim part of your household expenses. For example:
- Utilities (like heat and electricity)
- Internet and phone bills
- Rent or mortgage interest
- Equipment and Big Purchases
For larger items like computers or office furniture, you can claim part of their cost each year. The CRA has set percentages for how much you can write off annually, like 20% for furniture and 55% for computer hardware.
- Training and Education
If you take courses or attend seminars to improve your business skills, you can write off the cost. For example, if you take a marketing course to boost your sales, that expense is deductible.
- Advertising Costs
Spending money to promote your business is tax-deductible. This includes:
- Social media ads
- TV and radio commercials
- Designing your website
However, ads placed with foreign companies may not qualify, so double-check before claiming.
- Bad Debts
If a client doesn’t pay you for work you’ve already reported as income, you can write off the unpaid amount as a bad debt.
- Paying Your Employees
The wages, bonuses, and benefits you pay your employees are all deductible. Just make sure the payments are fair and related to the work they do. Salaries you paid to your children, spouse, relatives to perform work for your company are also deductible business expenses. However, the amount you pay them should be reasonable.
- Repairs and Maintenance
You can write off the cost of small repairs to your office or equipment. Big upgrades that increase the value of your property are treated differently, so check with a professional.
- Travel
If you travel for business-related purposes, you can write-off the expenses such as airfare, transportation, car rental, hotel, and the 50% of your meal costs.
Final Thoughts
Understanding and claiming write-offs can save you thousands of dollars each year. Remember, it’s not just about how much you make, but how much you keep after taxes that matters. If this still feels complicated, don’t worry—Ascenda Accounting is here to help! We specialize in making taxes simple for small businesses. Contact us today for personalized advice.