Have you ever gone to a business lunch with someone and noticed that they’re insistent on getting a receipt? You might think it’s a little odd at first. Who cares about holding onto the receipt for a $25 lunch, right? Well as it turns out, there’s probably a very good reason that person you talked business with over lunch is hanging on to that little piece of paper.
Welcome to the world of business expenses. As a business owner, there are certain costs you accrue in the process of doing business. It’s inevitable. It could be something as simple as a printer for your office or a hotel room you booked for an out-of-town conference. If you have business-related expenses, it can help you save when tax season comes around.
There are some pretty strict rules to the game, though. A lot of business owners don’t know what they can or can’t expense. This can lead to a lot of confusion while filing taxes and even larger issues, such as tax evasion if not properly filed. To avoid these issues, we’re here to help by giving you a rundown of how business expenses work.
The Canada Revenue Agency (CRA) is the agency that administers tax laws for the Government of Canada in most provinces and territories. In other words, they’re the law. They’re also pretty clear about what they look for when it comes to business expenses:
“Certain costs that are reasonable for a particular type of business, and that are incurred for the purposes of earning income. Business expenses can be deducted for tax purposes. Personal, living, or other expenses not related to the business cannot be deducted for tax purposes.”
Let’s break that down for a second. The operative word in that definition is “reasonable.” The last thing you want is the CRA to audit you and find that you’ve claimed thousands of dollars for personal use. Whether it is buying yourself a new car or a hot tub, certain expenses are outside the realm of reasonable for a business owner.
There are tons of expenses you can claim as a business owner. The most common ones come in the form of things such as business startup costs, supplies, office expenses, and employee salaries. These are all fair game when it comes to deducting from your taxes and are acceptable in the eyes of the CRA.
If you work from home, there are even more business expenses you can claim. Rent, telephone, and utilities can all be written off under this circumstance. You can even deduct a certain square footage of your home that is dedicated to work. Things like heat, electricity, insurance, maintenance, mortgage interest, and property taxes can all be deducted if they’re within the parameters of where you work at home.
Traveling for business also allows you to write off a percentage of meals, beverages, and entertainment. You can even deduct advertising for your business if you use it to land more work. The most important thing to keep in mind is that you have to be able to prove that these are all business-related expenses.
It should go without saying that if you don’t have any evidence of your expenses, it’s pretty much a lost cause. If you get audited by the CRA and don’t have any receipts to support the business expenses you’ve written off — you can end up in a pretty messy situation and a lot of trouble.
Err on the side of caution when it comes to business tax deductions. Keep all your receipts over the year and pick the ones that you really used for business-related things. It’s pretty simple to ask for receipts, so why not keep them? This way, if the CRA decides to audit you, you’ll have all the necessary evidence to support the business expenses you’ve claimed. If they’re legitimate, there’ll be no further issues.
Deciphering your business expenses can be challenging. Get in touch with us today to get set up with an experienced financial advisor who will help you deduct them properly and within the CRA’s rules.