The Big List of Small Business Tax Deductions

What are tax deductions?

Tax deductions are a small business owner’s best friend. 

A tax deduction is an amount of money the Canada Revenue Agency (CRA) lets you subtract from your total income to calculate your taxable income. In some cases, qualifying for enough tax deductions can bump you into a lower tax bracket, which can reduce the amount of taxes you pay for the year.

That’s why it’s important to claim every expense you can, even the small ones: it all adds up!

What kinds of expenses qualify as business expenses?

Any money spent running your business is considered a business expense, and you can claim it on your tax return as a deduction. Tax-deductible business expenses generally fall into three categories:

1. Things you use exclusively in operating your business. For example, a landscaper uses sod and mulch to provide landscaping services. A dog training service needs leashes, collars, and treats.
2. Things you use exclusively for your business in the space where your business operates. If you rent office space, the utility costs you incur are a business deduction.
3. Things you use while doing business. If you use your car to drive to client meetings, you can deduct the round-trip mileage as a business expense.

What are the most common tax deductions for small businesses?

Many small business expenses can be tax deductible. Here are some of the most recognized items:

• Accounting and tax prep software. If you’re self-employed or run your own small business, tax preparation software like TurboTax is an eligible deduction.
• Advertising fees. These fees include the cost of ads on Canadian radio and television stations and in Canadian newspapers. Digital advertising is also tax deductible, as well as the cost of registering your website’s domain name and web hosting.
• Business supplies. The cost of items that your business uses to provide goods or services are tax deductible. For example, grooming supplies used by a hair salon or tools used by a plumbing service.
• Delivery and shipping costs. If what you’re mailing or shipping is business-related, you can deduct the cost of postage, envelopes, P.O. Box rental fees, and delivery services like FedEx and UPS. 
• Home office. Small business owners often burn the midnight oil and work off-hours from home. If this sounds like you, it may translate into a deduction. For example, if your home is 2,000 square meters and your office is 400 square meters, your office is 20% of your home’s total size. That means you can deduct 20% of your home office-related expenses on your tax return.
• Independent contractors. If you hire independent contractors or freelancers for any business-related purpose—such as taking product photos for your online store or writing posts for your company blog—this cost is a tax deduction.
• Marketing fees. Materials used to promote your business and the cost of developing these materials are your marketing fees. Examples include business cards, flyers, signage, branded promotional items, trade shows, designer fees, and printing costs.
• Meals and entertainment. You can deduct 50% of the amount that you spend on meals and entertainment. For example, if you take your client to lunch or a hockey game, you can deduct 50% of the cost from your business income.
• Motor vehicle expenses. In addition to claiming round-trip mileage and parking fees on business-related meetings and excursions, you may be able to claim license and registration fees. Other examples include fuel and oil costs, insurance, maintenance and repairs, and leasing costs.
  Note: While interest on money borrowed to buy a motor vehicle is a deductible expense, you can’t claim the cost of the vehicle itself as this expense can only be written off over time through Capital Cost Allowance (CCA). 
• Office supplies. Small items such as pencils, pens, stamps, paper clips, and stationery are tax deductible—even the cost of the cleaning supplies. This category does not include desks, chairs, filing cabinets, and calculators because those are capital items.
• Professional fees. Legal, accounting, and bookkeeping fees are all deductible small business expenses.
• Rent. You can deduct rent paid for property used in your business, including the rent for the land and building where your office is located.
• Start-up costs. These costs can include anything your business needs to launch—from equipment, machinery, and supplies to legal and accounting advice. For a start-up cost to be eligible for a tax deduction, it must incur during the tax year (or fiscal period) your business started.
• Salaries, wages, and benefits. Deduct gross salaries and other benefits, such as the Canada Pension Plan (CPP) and Employment Insurance (EI) premiums you pay to employees.

• Telephone and internet. Telephone, cell phone, cable, and internet are all deductible if these expenses are related to business activities.
• Travel. Usually, you can write off 50% of the cost of meals, beverages, and entertainment when you travel on business.

• Utilities. Expenses for heat, electricity, insurance, maintenance, mortgage interest, and property taxes are tax deductible. For home offices, utility tax deductions must be in line with the actual size of the space you’re using for your business.

What are some of the lesser-known expenses your business can write off?

You may be surprised by some of the items listed below. But these expenses are tax deductible:

• Bad debt. Think of bad debt as any amount you’re not able to collect from whoever owes you money. You can deduct an account receivable that won’t get paid if you’ve already included it as income for the year. You can also deduct the cost of recovering balances owing to you, such as the cost of a lawyer or collection service.
• Bank charges. Management and administration fees charged by your bank, including bank processing fees and the cost of ordering cheques, are tax deductible.
• Commercial or trade organization memberships. Costs for fees, licenses, yearly dues, and business tax associated with commercial or trade organizations are tax deductible.
  Note: But you can’t deduct dues or initiation fees for club memberships if the main purpose of the club is for dining, recreation, or sporting activities.
• Insurance. All ordinary commercial insurance premiums you incur on any buildings, machinery, and equipment you use in your business are tax deductible. 

• Interest. Interest incurred on money borrowed for business purposes or to acquire property for business purposes is an eligible expense. Check the CRA website for limits.
• Private health services plan premiums. Payments that are made for you or for your employees and their dependants are tax deductible.

• Property taxes. Whatever property taxes you pay for the land and building where your business is located are tax deductible. But property tax related to a workspace used for business purposes in your home must be claimed as a “business-use-of-home” expense.

What are non-tax-deductible expenses?

Unfortunately, even though some of these expenses seem legitimate, they are not tax deductible for your small business:

• Clothing. Even if you wouldn’t be caught dead in a suit outside business hours, you’re still not permitted to write it off. Ditto for dry cleaning. There are a few exceptions: for instance, if you wear a uniform or special safety clothing. 
• Commuting costs. While traveling to business meetings or client sites throughout the workday is deductible, traveling to and from your home is not.

• Fines and penalties. Got a parking ticket? A speeding ticket? Have late fees on your tax return? None of these things are tax-deductible expenses.

• Golf club dues and gym memberships. Nice to have, good for your health, and a great way to meet new clients—but unfortunately golf club and gym memberships are not tax deductible.

• Life insurance premiums. Life, health, and disability insurance premiums aren’t tax-deductible for businesses or individuals.
• Your labour. When deducting business expenses for repairs and maintenance, you can’t deduct the value of your own labour.

How to file your taxes online and claim your deductions

While the thought of filing taxes is enough to make some founders weep, this annual activity could be an opportunity for significant tax savings. Just remember, the more expenses you claim, the lower your taxable income will be.

But no one said preparing your small business tax return properly is an easy task—especially if it’s your first time. So TurboTax is here to help. Here are 3 TurboTax services that can aid small business owners in claiming every benefit possible and maximizing their deductions.

• TurboTax Self-Employed Live Full Service – Hand over your information to a TurboTax expert who prepares your tax return for you.

• TurboTax Self-Employed Live Assist and Review – Work with a TurboTax expert to assist in the preparation of your tax return, who will review it before it gets filed to the CRA.

• TurboTax Self-Employed – You are in charge of your own tax filing. However, you have access to the online community and other online TurboTax resources.

All of these products are NETFILE Certified and CRA approved.