Business Income, Credits & Deductions, Expenses, Getting Organized, Self-Employed, Tips & Advice

Essential Tax Deductions for Small Businesses

If you are a small-business owner, you are entitled to make deductions on your tax return which are subtracted from your income and which can reduce your tax owing / increase your refund.

Here are some of the most common ones:

Operating Expenses

When you own a small business, you can deduct your operating expenses from your income, including, but not limited to; advertising, startup costs, delivery expenses, maintenance and repairs, business insurance, employee salaries and utilities.

If you rent an office or other facility, you can deduct rental costs and utility costs as business expenses. However, if you use a home office, these expenses must be calculated differently as you are entitled to a deduction based on the percentage your home office takes up in your home, and further divided by the percentage of time that space is used for business rather than for personal use.

Home Office Deductions

In order for your home office to qualify for business-related deductions, it must be your principal place of business or must be used exclusively for business. If your home office meets at least one of these criteria, you can deduct a portion of your expenses. These include utility bills, home insurance and mortgage interest or rent.

To determine the amount that you can deduct as a business expense, calculate the size of your home office as a percentage of the area of your entire home. Then, multiply that figure by the relevant expenses.

If your home office is not used exclusively for business purposes, you need to determine what percentage of time that your space is used for work. For example, imagine that you work 45 hours per week and use your space as an office 27 percent of the time. Multiply this percentage by the percentage of space your office takes up in your home and apply that figure to your expenses.

Travel and Entertainment Expenses

You can also deduct business-related travel expenses such as plane or bus tickets, hotel rooms and conference fees. However, you can only deduct 50% of your meal and entertainment expenses. Examples of these expenses include sporting event tickets and dinners with clients.

Vehicle Expenses

If you use a vehicle for your business, you can deduct costs related to that vehicle including maintenance, insurance, repairs, parking and fuel. However, if you also use your vehicle for personal use, you can only deduct the percentage of those expenses related to when the vehicle is used for business purposes.

To determine what portion of your vehicle expenses you can deduct, divide the number of miles you drove your vehicle for work by the total numbers of kilometres you drove for the entire year. Multiply that result by your expenses.

For example, if you drove your vehicle 1,000 kilometres for business with a total of 10,000 kilometres for the year, you can deduct 10% of your vehicle expenses as business expenses.

Employee Salaries and Benefits

As a small-business owner, gross salaries that you pay to employees and subcontractors can be deducted. Employee benefits such as Canada Pension Plan contributions, Employment Insurance premiums and Workers Compensation amounts also qualify as deductions.

Filing Online

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