What is a Tax Write-off?

A tax write-off is simply another way of saying “tax deduction.” With a tax write-off, you can deduct a large number of expenses approved by the Canada Revenue Agency, all of which help significantly reduce your taxable business income.

For example, if you earn $120,000 a year and have $15,000 written off, you will only be taxed on $105,000 of income. In some cases, tax write-offs can lower your federal tax bracket, reducing the amount of income tax you have to pay.

Depending on the province you live in, your small business may be eligible for other tax write-offs.

There are lots of different deductions that small business owners can take advantage of when preparing their taxes to reduce their taxable income; some are common, and some are uncommon.

Below is a list of deductions and tips that small business owners in Canada can use to lower their tax bill and, in some cases, put them in a lower tax bracket.

5 Tax Write-offs for Small Businesses in Canada

Home Office Expenses

Home office expenses are the most common tax deductions for small businesses in Canada. If you work from home, whether in a large office or on the kitchen counter, you can claim a wide variety of expenses.

How much you can write off is determined by the percentage of your home office compared to the total size of your home.

If you work from home, you can write off:

  1. Interest on your home mortgage
  2. Utilities
  3. Property tax
  4. Repairs and maintenance
  5. Household insurance
  6. Internet
  7. Phone
  8. Furniture, computers, office equipment, mobile devices, etc.

When it comes to home office tax write-offs, the key is to understand the difference between office expenses (pens, stamps) and depreciable assets (printers, filing cabinets, computers). Depreciating property wears out over time, so you can only claim a tax deduction for a portion of the original cost each year.

This can also be handy when calculating tax write-offs for self-employed Canada.

Automobile costs

Most Canadian small business owners use their personal vehicles for business purposes. This can be beneficial at tax time as you can write off the business portion of the cost of using the vehicle.

Vehicle costs include:

  1. Fuel and oil
  2. Parking fees
  3. Repairs and maintenance
  4. Toll fees
  5. Vehicle registration fees
  6. Allowance for capital costs (if you own)
  7. Lease payments (if you rent)

Vehicle expenses tend to be one of the most abused ways of claiming deductions. And as a result, one of the most audited by the Canada Revenue Agency.

The Canada Revenue Agency requires you to keep an accurate logbook to verify when the car is used for business and pleasure.

Home Insurance

You can deduct any normal commercial insurance premiums you incur for buildings, machinery and equipment you use for your business. This includes your home business. But there is a catch. Your home business must have commercial insurance. Home business insurance is largely commercial in nature, but separate from home insurance.

Why should you spend the extra money on commercial insurance for your home business? If you don’t have home insurance and something happens, you may not be covered. In some cases, your home insurance can be canceled if the insurer doesn’t know you run a home business.

Get home insurance and use it as a small business write-off.

Dining and Entertainment

As a small business owner, you can write off most of the expenses that are used to make the business generate income. In addition to office supplies, which are 100% deductible, business expenses can also include food and entertainment but are 50% deductible. If you take a client out to dinner and a baseball game, you can deduct 50% of the expenses. Remember to keep all receipts.

For expenses that are both personal and business in nature, you can write off only the portion of the expense that relates to the business. In certain circumstances, you can write off 100% of business expenses, such as food or entertainment.

Advertising Costs

Depending on the medium, you can write off some or all of your media advertising costs.

Online Advertising: Online advertising is 100% deductible. This includes the cost of website domain name registration and web hosting.

Television and radio advertising: Television and radio advertising is also 100% deductible for Canadian stations.

Magazines and newspapers: Both media are fully deductible, but only under certain strict conditions. In order to write off 100% of the costs, at least 80% of the material in the magazine or newspaper must be of a non-fiction nature. This means that advertising cannot take up most of the space. If the nonfiction content is less than 80%, only 50% of the cost can be written off.

Bad debts

If a customer owes you money but can’t collect it within a year, you may be able to claim it back.

Not all bad debts are eligible. The CRA will not allow you to collect bad debts related to a mortgage or debts that arise from a conditional sale agreement. Business owners are always advised to speak with a tax professional for further information.

The above-mentioned are the ways in which one can benefit from tax write offs in Canada.

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