As any small business owner knows, every dollar counts when it comes to making an impact on your bottom line. You don’t want to accidentally leave money on the table at the end of the year by overlooking key tax deductions. This blog post outlines the top 5 Canadian tax deductions that small business owners often miss and some tips on how to take advantage of these deductions.
Home Office Expenses
Many small businesses start as a home operation. If you are still in that stage of your business, you may be eligible to claim a portion of your home expenses as a business deduction on your tax return. This would include any mortgage, interest or rent payments, property taxes, utilities, and fees relating to any home maintenance. To qualify for this deduction, your home office must be your principal place of business or used exclusively for earning business income.
How to Take Advantage:
To properly take advantage of this deduction, calculate the percentage of your home that you use for the business by dividing the area of your workspace by the total area of your home. Keep detailed records of all home-related expenses to support your claim, including receipts and invoices that you receive for any expenses incurred.
Vehicle Expenses
If you use your vehicles for business purposes, you may be able to claim a portion of your vehicle expenses. This would include any expenses from fuel, maintenance, insurance, and lease payments or capital cost allowance if you own the vehicle.
How to Take Advantage:
Create and maintain a detailed logbook tracking your business and personal mileage. Only the business portion of your vehicle expenses are deductible, so you will need accurate records to back up your claim.
Advertising and Promotion
A not commonly known fact is that expenses for advertising and promoting your business are tax deductible. This would include expenses that relate to social media ads, print ads, website development, business cards, promotional materials and sponsorships. Many businesses fail to claim these eligible advertising costs, especially costs related to digital marketing.
How to Take Advantage:
Ensure you’re keeping track of all of your advertising and promotional expenses, including online marketing campaigns and promotional materials like business cards and brochures. Save any receipts or invoices you receive to use as paperwork to back your claim.
Capital Cost Allowance
As your business begins to grow you will probably acquire some capital assets, such as equipment, vehicles, or furniture. All of these items can be deductible but you can’t deduct the full cost in the year of purchase. Instead, you can claim a portion of the cost each year through the Capital Cost Allowance.
How to Take Advantage:
Classify your assets correctly and apply the appropriate CCA rate. Review your asset list on a yearly basis to ensure you’re claiming the maximum allowable deduction.
Bad Debts
If you’ve invoiced a client and are unable to collect the payment, you may be able to claim this as a bad debt deduction. This deduction allows you to recover the tax you’ve paid on the income you never received.
How to Take Advantage:
Write off bad debts by the end of the fiscal year in which you determined the debt was uncollectible. Keep all documentation of your attempts to collect the debt and any evidence that it’s unlikely to be recovered.
By being aware of these commonly missed deductions, you can optimize your tax situation and keep more of your hard-earned money. Make sure to consult with a tax professional to ensure you’re taking full advantage of all available deductions and staying compliant with Canadian tax laws. Schedule a 1:1 consultation with LedgersOnline and learn how we can help get you your best return.
