As a Canadian small business owner, it can be hard to keep track of your taxes from income tax to capital gains tax, HST, payroll taxes, and more. This can be especially difficult for those just starting their businesses, as the regulations and taxes are a confusing barrier to entry. And for those who have been in the game for decades now, it’s easy to get complacent and assume you’re still doing everything right — until you’re in trouble with the government.

Filing for deductions actually gets much easier when you understand the different types of available for your business. By learning now, you’ll save money in the long run; who doesn’t want that? In this post, we’ll cover common tax deductions that are available to Canadian small business owners. This is just a starting point. To get a comprehensive run-down of every tax deduction you’re eligible for, contact us for a free consultation of your business.

Capital Expenses Versus Operating Expenses

Tax deductions can generally be divided into two categories: capital expenses and operating expenses. Capital expenses are typically large, one-time purchases that help with the setup and growth of your business. These can include computer hardware, vehicles, office furniture, or other pieces of equipment. Capital expenses can be deducted in the year they are incurred, or spread out over a period of years.

Operating expenses are the costs associated with keeping your business running, such as employee wages and salaries, office supplies, insurance premiums, advertising, or rent and utilities. These expenses can be deducted from your business income in the year they are incurred.

How Much Home Office Expenses Can You Deduct?

Home office expenses are the first type of item that small business owners in Brampton and Mississauga frequently deduct from their taxes. Your mortgage, utilities bill, property taxes, repairs, and house insurance are just a few of the costs associated with working from home. Deduct home office expenses, but not 100% of the cost. How much, then?

If your home office occupies at least 15% of the entire area of your home, you can deduct up to 15% of the associated home office expenses when calculating deductions on your business or individual tax return. And remember: you can’t deduct anything if you haven’t been tracking your expenses. Keep your receipts and your bookkeeping up to date if you want to start saving money.

Deducting Car Expenses For A Small Business

Car expenses are the second-most common significant cost that small business owners can deduct. Insurance, repairs, maintenance, vehicle registration fees, fuel, oil, and other costs like parking and tolls are all part of car expenses, based on business-related use.

For example, if you drove 20,000 kilometres in a year and half of those kilometres were for work, you could deduct half of your car expenses. Don’t write off 100% of your car expenses.

The most significant automotive tax advantage is tax depreciation. Up to 30% of the cost of your vehicle’s purchase may be deducted annually if you own it. Therefore, if your car is worth $20,000, you could deduct $6,000 in the first year if the car was utilized entirely for business. If it was not used entirely for business, you would calculate the amount used for business activities. For example, let’s say 50% had been utilized for business activities. As a result, 50% of the $6,000 may be written off for tax purposes. This still saves you thousands of dollars.

Deducting Capital Assets For A Small Business

A capital asset is something with monetary value and long-term durability. Computers, furniture, and other tangible things are a few examples. These assets are not deductible in a single year. Based on the predetermined depreciation rates set by the Canada Revenue Agency, they are written off over time.

What other types of frequent business expenses should small business owners expect?

Supplies, equipment, meals and entertainment, purchases, inventory, purchases, and advertising supplies all fall into this category of things to watch out for if you enjoy saving money.

Overall, there are a number of different types of tax deductions that Canadian small business owners can take advantage of. By taking full advantage of such deductions, you will be better equipped to manage your finances more effectively so that you can focus on confidently growing your small business in Brampton and Mississauga.

Is It Really This Easy To Write Off Business Expenses?

According to the Income Tax Act, every expense made for the purpose of generating revenue from a business is tax deductible… as long as it’s reasonable. What does that really mean? That’s a bit more nuanced, which is why only an expert should take full advantage of tax law. When you contact ACM CPA today, we will review your business expenses and help maximize your savings so you can make the most of your money.