Running a business is no easy task, and those who run one know how much effort, hard work and stress can go in to it. However, with helpful information and guidance, there is one thing about running your business that can be simplified – filing your tax return. Your business tax return is due by Thursday, June 15…which isn’t too far away.
To make the entire process slightly less complicated, we’ve compiled some of the most common questions that TurboTax Home & Business users have. And if you have more doubts or need to ask about a specific topic, go to our informative AnswerXchange forum and reach out to a community member, who’d be more than happy to help.
Claiming Capital Cost Allowance
Capital Cost Allowance (CCA) is the tax deduction you can claim for depreciable property. This can include items such as furniture, equipment or even entire buildings are subject to wear and tear over time. This means that when you purchase property that will depreciate, you cannot claim its total cost as an expense; instead, you would have to deduct its cost over a period of years. Here’s a simple example:
You’ve purchased a carton of paper reams for your office printer, and you know the paper will be used on a daily basis. The paper would be considered a short term benefit, whereas if you purchased a filing cabinet for your business, it would be considered a long term benefit. For tax purposes, the paper is considered a current expense, and the filing cabinet is a capital expense.
Depreciable property can only be deducted under CCA if it’s available for use, and there are a few aspects of this rule you need to understand clearly before you file. The CRA has an informative write-up on these rules here. Additionally, depreciable property is organized into different classes as well, which means you can only claim a certain amount on it.
The filing cabinet from the earlier example falls into class 8 with a depreciation rate of 20%. See a list of most commonly used classes and their rates on the CRA’s website.
Eligible Home Expenses
Working from home certainly has many practical benefits, so it’s no wonder that 1 in 5 university graduates use their homes as their office. You end up saving a significant amount, such as expenses incurred with commuting and meals. Also, if you run your business from home, you’ll be saving money on business rent and overhead. However lean your operation is, there are still some expenses you will face: supplies, utilities and home office space are a few. All of these are expenses you can claim on your tax return.
To qualify your expense, your home must be your primary place of business, where you conduct business more than half the time. This can include meeting clients, customers and patients. The expenses you can include:
- Home Insurance
- Property Taxes
- Monthly Rent
To calculate the expense of your home office, you must determine the percentage of the finished area of your home that was allocated for business use. You can use the square footage of your home to determine this number. Take the square footage of your home work space and divide that amount by the total square footage of your home to get the percentage.
For example, if your home has 2,000 square feet of usable space, and your home office takes up 200, then your home business usage is 10%, which you simply apply to the total amount of expenses.
It’s important to note that you may not use your home business expenses to show a loss. Other business expenses, such as advertising and legal fees, must be deducted first. Any undeducted home expenses may be carried forward to the following year.
Motor Vehicle Expenses Deduction
If you used a vehicle for business purposes this tax year, you can deduct those motor vehicle expenses as part of your business. There are 2 kinds of motor vehicle expenses you can claim, which are broadly those related to the use of a vehicle, and those related to the purchase of one. For a motor vehicle used to earn business income, you can claim the following expenses:
- License and registration costs
- Auto Insurance
- Fuel and oil
- Auto loan amount (and interest)
- Leasing costs
However, if you also use that same vehicle for personal use, you can only deduct a portion of the above expenses that are directly related to using your vehicle for earning income.
This means that you need to know how many kilometres you drove for business purposes and how many you drove for personal use. There are exceptions to this thought – you can claim 100% of the expenses incurred for items like parking for business reasons, and supplementary business insurance. One of the best ways to keep track of how much you’ve driven for business is to keep a log book.
These are just a few of the helpful tax tips you can use for filing your business return. With TurboTax Home & Business, your return is much easier to file as it guides you through claiming all of your gains and losses, rental property income and much more. Click here to learn more and get started!