The Ultimate Cheat Sheet for Small Business Tax Breaks!

Your Really Cool List For Small Business Tax Savings!

Although taxes are inevitable, there is a possibility to reduce them. Fortunately, numerous small business tax deductions exist to assist in decreasing your taxable income. I’ve compiled a list of potential small business tax write-offs that could benefit your financial strategy.

However, I’m NOT a Tax Professional…

This list is just a quick guide to help you get started with potential small business tax write-offs. But remember, it’s not professional tax advice. For accurate advice that fits your business, talk to a tax pro. Use this list as a starting point, but don’t forget to consult with a pro for the real deal. It’s crucial to recognize that while this list provides valuable insights, I strongly advise seeking guidance from a qualified tax professional to ensure accurate and compliant expense reporting. Tax regulations can be intricate, and professional advice is essential for navigating the nuances of your specific business circumstances. Always consult with an expert who can provide personalized guidance, helping you maximize legitimate deductions and maintain proper financial compliance.

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Small business owners, always mindful of their yearly tax payments, explore various ways to lighten the load. Tactics like incorporating your business and utilizing investment tax credits are effective tools for reducing your small business tax burden.

Another impactful strategy involves taking advantage of tax write-offs. By making the most of these deductions, you can significantly decrease your small business’s taxable income, leading to a smaller tax bill. Now, what can you actually write off for a small business in Canada? Let’s delve into the specifics to simplify navigating the Canadian tax system for small business owners.

The Costs Of Operating Your Small Business

Running a successful business comes with a silver lining — many essential expenses can be leveraged as tax write-offs. These allowable business expenses, typical for most small businesses, encompass:

1. Business Supplies: The specifics vary based on your business type, but any regular necessities crucial for your business operations qualify as tax write-offs.
2. Office Supplies: This includes stationery, paper, ink, pens, pencils, and other office essentials crucial for seamless daily operations.
3. Delivery Costs: Whether for goods or other items, the expenses related to delivering your business offerings can also be factored in as tax write-offs.
4. Insurance Costs: Various types of insurance can be written off for tax purposes in the realm of small businesses:

• Property insurance covering your business buildings, equipment, and other assets.
• Business liability insurance guarding against potential legal actions.
• A portion of your life insurance if used as collateral for a business loan.
• Business interruption insurance, which provides coverage for losses stemming from events like fires or natural disasters.

The Costs of Accounting and Other Professional Services

In the realm of small business tax write-offs, certain financial aspects can also play in your favor:

1. Bank Interest and Charges: The interest on loans and any bank charges your business incurs can be claimed back as small business expenses.
2. Professional Fees: Fees paid to professionals such as accountants, lawyers, and consultants are eligible for tax write-offs. However, it’s important to note that legal fees associated with property acquisition should be included in the property’s overall cost. Additionally, charges from contracted services, like hired contractors, can also be considered small business tax write-offs.
3. Business License Fees, Trade Memberships, and Subscriptions: Fees for business licenses, memberships to trade organizations, and subscriptions to relevant publications are all recognized as allowable business expenses. These can contribute to reducing your taxable income.

Promoting Your Small Business

Maximizing your business presence through marketing and advertising comes with its perks in the tax realm. Here’s how you can make the most of tax write-offs in this domain:

1. Advertising Expenses: Whether it’s out-of-home (billboards), radio, TV ads, or online promotions, all types of advertising costs qualify as small business tax write-offs.
2. Promotional Materials: Expenses for business cards, flyers, signs, printing costs, and participation in trade shows or conferences are all eligible for tax deductions.
3. Long-Term Marketing Efforts: Costs associated with more enduring marketing endeavors, like website builds, may need to be spread over the duration of their utility.
4. Client Entertainment: When treating your company’s clients to meals or sports/entertainment events, you can deduct 50% of the expenses, including gratuities. Remember to keep and submit receipts for documentation.
5. Employee Events: The costs incurred for up to six employee events, such as holiday parties and team-building activities, can also be written off. This provides an opportunity to foster team spirit while enjoying tax benefits.
6. Social Media Advertising: Expenses related to advertising on social media platforms, such as sponsored posts and campaigns, are eligible for tax deductions.
7. Search Engine Optimization (SEO) Costs: Any costs incurred for optimizing your website and content for search engines can be considered as part of your small business tax write-offs.
8. Email Marketing Expenses: Costs associated with email marketing campaigns, including software subscriptions and design services, are eligible for tax deductions.
9. Public Relations (PR) Expenses: If you engage in public relations activities, such as press releases or hiring a PR consultant, these costs can be considered as business expenses.
10. Branding Expenses: Costs related to the development and design of your business brand, including logos and visual identity, may qualify for tax write-offs.
11. Sponsorship and Charitable Contributions: Contributions to sponsorships or charitable events aligned with your business objectives can be eligible for tax deductions.
12. Market Research Expenses: Costs incurred for conducting market research to understand your target audience and industry trends can be considered as part of your small business tax write-offs.

Asset Depreciation

Harnessing the natural decline in the value of your business assets provides yet another avenue for small business tax deductions. Various assets, ranging from vehicles and computers to machinery and furniture, can be factored into this depreciation strategy.

The Canada Revenue Agency (CRA) has established specific rates for asset depreciation, assigning different annual rates based on the nature of the asset. Here’s a glimpse into some of these rates:

1. Buildings: Depreciation rates for buildings typically fall within the range of 4% to 10%, accounting for the wear and tear on the property over time.
2. Furniture and Appliances: Assets like furniture and appliances are subject to a depreciation rate of 20%, acknowledging the gradual decrease in their value as they fulfill their roles within your business.
3. Computer Hardware: For computer hardware, which often evolves rapidly, a higher depreciation rate of 30% is applied, reflecting the faster pace of technological advancements.

Bad Debts

If you have debts that you couldn’t collect and had to write off, you might be able to consider them as an expense for taxes, as long as you already counted them as income before. This doesn’t apply to mortgages or conditional sales agreements. It’s a way for businesses to handle losses from uncollectable debts in their financial records. Just make sure to check with a tax expert to make sure you’re doing it right.

Donations To Charity

If you donate to registered Canadian charities and get tax receipts, you can use those donations to lower your taxes. It’s a way to support charities you believe in and get a break on your taxes. Just make sure the charities are registered in Canada, and keep the receipts safe. If you have questions about how to do it right, it’s a good idea to talk to someone who knows about taxes.

Home Office Expenses

If you use a part of your home as an office for your business, you may be eligible to claim a portion of certain expenses as small business tax write-offs. These expenses could include a percentage of your rent or mortgage interest, insurance, utilities, property taxes, and maintenance costs. The amount you can claim is based on the proportion of your home office size compared to your entire home. This can be a valuable deduction for those who operate a business from home, so it’s worth exploring and consulting with a tax professional to ensure accurate calculation and compliance with tax regulations.

Business Property Costs

When it comes to your business property, there are certain expenses you can consider for tax deductions:

1. Business Property Rent: If you rent space for your business, make sure to provide your rent receipts and rental contract when filing your taxes. This can contribute to reducing your taxable income.
2. Property Taxes: If you own the property where your business operates, you can include property taxes as part of your deductible expenses. This is applicable to the property you use for business purposes.
3. Repairs and Maintenance: Costs associated with necessary repairs and maintenance of your business property and equipment can be claimed as tax deductions. However, expenses covered by insurance claims cannot be claimed. It’s important to note that you can’t claim expenses for repairs considered capital expenses, like renovations that provide benefits over several years; those costs should be distributed over time.

Employee costs

When it comes to the expenses associated with employing people in your business, various costs can be considered allowable business expenses. These include:

1. Salaries, Wages, and Bonuses: The payments you make to your employees, including regular salaries, wages, and any bonuses, are typically allowable business expenses.
2. Canada Pension Plan (CPP) Payments and Employment Insurance (EI): Contributions to the Canada Pension Plan (CPP) and Employment Insurance (EI) for your employees are also considered allowable expenses. These contributions support your employees’ future retirement and provide financial protection in the event of job loss.
3. Premiums for Employee Insurance Plans: The premiums you pay for employee insurance plans, covering sickness, accidents, disability, or income, are generally recognized as allowable business expenses. These plans contribute to the well-being and security of your workforce.

Travel and vehicle costs

When it comes to necessary business travel, such as visiting clients, suppliers, or attending conferences, a range of expenses can be considered as small business expenses. This includes costs like plane and train fares, taxis, hotels, and even 50% of your meals during the trip.

If you use your car for business purposes, you can also claim various car expenses. Keeping a mileage log is essential, documenting the portion of your car usage that is business-related. The list of car expenses you can claim is extensive, covering items such as gas, repairs and maintenance (including oil changes), car insurance, lease payments, parking fees, toll charges, and even registration fees. If you own the car, you may also deduct a percentage of its cost as depreciation. Proper documentation and consultation with a tax professional can help ensure accurate and compliant reporting of these expenses.

In The End

These tips offer a handy starting point for understanding small business tax deductions. Remember, this is just a guide, not a replacement for expert advice. Consulting with a tax professional ensures you get it right, following the rules and making the most of potential benefits. Keep detailed records, and don’t forget: your investment advisor or portfolio manager should collaborate with your accountant to fine-tune your tax strategy for the best results. This way, you can navigate the tax landscape with confidence, making smart decisions to support your small business’s financial health and growth.

Did you know that navigating the uncertainties of the markets and your finances is generally smoother with the support of an investment advisor or portfolio manager? Studies consistently reveal that individuals who work with investment advisors and portfolio managers tend to have up to three times higher net worth on average, but that’s not all, there’s a significant impact on overall well-being, with those who seek professional advice exhibiting higher levels of happiness and lower anxiety. Having a guiding hand through the financial landscape proves beneficial not only in terms of monetary outcomes but also in fostering a sense of security and contentment, making the challenges of an uncertain year more manageable with professional assistance.

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Joe A. Macek, FMA, CIM, DMS, FCSI

Investment Advisor, Portfolio Manager

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