10 Forgotten Small Business Tax Deductions

Tax season is upon us once again and if you’re anything like the majority of small business owners, it’s your least favourite time of the year. Whether you’ve stayed on top of your bookkeeping throughout the year or you’re now scrambling to find all of those receipts, we all have one thing in common: the dreaded tax payment. I want to help you lower that tax payment by taking advantage of all of the small business tax deductions available to you.

When you work for someone else, they typically deduct income tax from your paychecks. However, when you’re self-employed, no income tax is deducted from your sales. This means that at the end of the year you owe the government a big chunk of money.

There are two main ways to soften the blow of this income tax bill:

• Prepare – Similar to how an employer would deduct income tax from your paycheck, it’s a good idea to set aside money every month from your business income. If you’re able to avoid dipping into this cash throughout the year, you should have a good amount of money set aside for your tax bill at the end of the year.
• Make use of tax deductions – You want to take advantage of all possible deductions to minimize your taxable business earnings for the year. The lower you can get your business income, the less tax you’ll owe. If you’re having an accountant file your taxes for you, they should be able to help you get the most deductions possible, but they need to know what your expenses were in order to account for them.

Here are some of the business expenses you may be forgetting to take advantage of.

This post is informative only and is based on my knowledge and experiences. Please consult with a local professional for the best information for your business. Review our Policies for more info.

1. Home Office Expenses

If you run your business out of your home, there are a lot of home expenses you can claim as small business tax deductions. You will only be able to deduct a portion of these expenses as you only use a portion of your house for your business, but every bit adds up! To know how much you can claim, you need to determine your business use of home.

How to Calculate Business Use of Home

If you have a dedicated room that you only use for your business, then calculate the business use of home as that room’s area out of the total area in your home. Example: If your office is 300 sqft and your home is 1200 sqft, then your business use of home is 25%. That means you can claim 25% of your eligible home expenses as business expenses.

If you use an area in your home for both business and personal use, then you can only claim the portion of the time you use it for business. Example: You work out of your 300 sqft dining room from 9am-5pm each weekday. But the rest of the time, you and your family use that space for personal use. So you’re only using the room 40 hours out of the 168 hours in a week and that room takes up 25% of your home. Therefore, the business use of your home is only 6% and you can only claim 6% of household expenses for your business.

As you can see from these examples, having a dedicated business space in your home will allow you to deduct a much higher percent of your household expenses. In both examples, you were working out of the same size room in the same size house but the claimable amount varied by 19%. However, if you can’t dedicate a business space in your home, it’s still worthwhile to claim the small portion of your household expenses that you can. Even 6% can make a big impact since your annual household expenses are probably pretty high. (If your annual household expenses were $10,000 then 6% would allow you to deduct $600 from your business income.)

Household Expenses to Claim as Small Business Tax Deductions

You can claim a portion of any household expenses that you pay from the list below:

• Rent – If you rent your home, then you can claim the rental amount as a household expense.
• Property Tax – If you own your house, claim the annual property tax as a household expense.
• Mortgage Interest – Homeowners with a mortgage can also claim the annual mortgage interest as a household expense.
• Utilities – Whether you rent or own, claim all utilities (heat, water, electricity) as household expenses. Note: if your rent includes some or all utilities, then don’t include that amount twice.
• Home Internet – Claim your internet bills as a household expense.
• Phone – If you have a home phone, claim those bills as a household expense. You can also claim cell phone bills, but only the portion that you use your cell phone for business.
• Home Maintenance – You can claim any minor repairs or home maintenance that you do throughout the year as household expenses. If the repairs are major, the costs are considered a capital expense instead and you’ll have to claim them differently. Notes: if you did the work yourself, you can’t claim your own labour as an expense. Also, if the insurance company or your landlord reimbursed you for the repairs, you can’t claim those as expenses.
• Condo Fees – If you own your home and pay condo fees, include those with your household expenses.

2. Vehicle Expenses

If you occasionally use your vehicle for business purposes, you can claim a portion of your annual car expenses as small business tax deductions. This works essentially the same way as with your household expenses: you can only claim the portion of expenses as determined by how often you used the car for business purposes vs. personal use.

Examples of business use of your vehicle may include:

• Driving to vendor events
• Picking up supplies
• Delivering local orders
• Making post office drops

There are two vehicle expenses that are claimed 100% for business use rather than a percentage of your vehicle costs:

• Parking fees related to business activities – Ex. if you drive to pick up supplies and must pay for parking at the store, then you can claim the full parking fee as a business expense.
• Supplementary business insurance – If you have additional insurance on your vehicle for business use, claim the business insurance add-on amount as a business expense.

How to Determine Business Use of Vehicle

In order to determine how often you used the vehicle for business, you must keep a mileage log. Be sure to report the starting odometer reading at the beginning and end of the year. Then for every business car trip record the date, destination, mileage driven, and purpose of the trip. At the end of the year, determine how much you drove your car (ending odometer reading – starting odometer reading) and add up the mileage for all business trips. That gives you the percentage you used your car for business.

Example: Annual mileage was 20,000 km. Business trips summed to a total of 2,000 km. That means you used the car for business use 10% of the time and can therefore claim 10% of your annual vehicle expenses as a business expense.

Vehicle Expenses to Claim as Small Business Tax Deductions

You can claim a portion of all of the following vehicle expenses:

• Fuel & Oil – Keep a record of all of those trips to the pump and claim them as vehicle expenses.
• Insurance – Your annual car insurance costs can be included with your vehicle expenses.
• Repairs & Maintenance – If you had any scheduled or emergency repairs/maintenance done on the vehicle, then claim those costs as vehicle expenses. Note: if you were reimbursed by insurance for any repairs, don’t claim those amounts.
• License & Registration Fees – Fees you pay for registering your vehicle and annual licensing fees can be claimed as vehicle expenses.
• Interest on Car Loan – If you bought your vehicle and pay interest on your car loan, claim the annual interest paid as a vehicle expense.
• Leasing Fees – If you lease your vehicle, claim the lease payments as a vehicle expense.

If you’ve purchased your vehicle, you can also claim that purchase as a capital expense.

3. Bank Fees

Do you have a separate bank account for your business? If not, you should set that up so it’s easier to keep your personal and business transactions separate. This is easier for bookkeeping and tax purposes since everything is in one place. In addition, it gives you a clearer picture of your business finances. If you’re a sole proprietor, you don’t have to open a specific business account; it can be just a separate personal account that you use for business income and expenses.

Any bank fees that you pay for that account can be claimed as business expenses. This may include monthly bank fees and fees you pay per transaction or e-transfer.

If you have a business credit card (also a great idea for keeping those business purchases separate), you can claim the annual credit card fee with your small business tax deductions as well.

4. Payment Processing Fees

If your business accepts customer payments by credit card, you’re paying payment processing fees to do so. This could be through any of the following payment processors: Etsy payments, PayPal, Shopify payments, Square, Stripe, and more. These fees are typically around $0.30 + 3% per transaction, which adds up quickly throughout the year. Be sure to sum up these charges and include them with your small business tax deductions.

5. Office Supplies

Small office supply purchases that you make throughout the year may not seem like much, but they add up quickly. Keep your receipts and claim these office supply purchases as small business tax deductions. This includes small office purchases for consumable items like: pens, paper, ink cartridges, file folders, paperclips, etc.

Larger purchases for office furniture or equipment or supplies that don’t get used up are not eligible under this category. Most of them would be claimable as capital expenses instead. This includes your office desk, calculator, printer, computer, lamp, etc.

6. Advertising & Marketing

In trying to promote your small business, you’ve probably spent money on advertising and marketing materials throughout the last year. Marketing materials could include promotional items you had printed such as business shirts, pens, etc. as well as business cards, flyers, and the like.

Advertising costs could include ads you ran on social media for your website, an advertisement on your local radio station or newspaper, or Etsy advertisements.

7. Business Insurance

Do you have insurance set up for your business? If not, I highly recommend doing this ASAP. It not only protects you from damage or loss to your business equipment and supplies but also loss of business income that may result from damage to your place of business (ex. your basement flooding). You should also be sure to get liability insurance to protect yourself and your personal assets in the event that an unhappy customer takes legal action against you. As a sole proprietor, your personal assets are at risk if your business is sued. You definitely want business liability coverage to protect yourself and your family from financial risk.

If you run your business out of your home, you may have a home based business add-on policy to your home insurance. That add-on amount is claimable as a business expense. If you operate your business from a separate location, the business insurance you pay on that property can also be fully claimed with your small business tax deductions.

8. Interest on Business Loans

Did you take out a loan to start or expand your business? The good news is that any interest you pay on that loan can be claimed as a business expense.

9. Accounting Fees

You might pay a bookkeeper and/or accountant to help you report or record your business income and expenses. If so, you can claim those costs as Professional Fees on your small business tax deductions.

10. Travel & Meals

If you have to travel for business purposes, money you spend on getting there plus meals you eat while away can be claimed as business expenses. Types of business travel for small business owners could include:

• Travelling to an out of town vendor event
• Attending a business development workshop or conference
• Traveling to meet with a potential supplier or wholesaler

Travel expenses include public transportation fares, accommodations, and meals. Meals can only be claimed at 50% of their cost and must have been purchased while travelling. You can also claim meals bought during a client business meeting (as long as you don’t bill the client for the meal). If you drove to the event, be sure to include that trip in your mileage log so you can include it with your business use of vehicle expenses.

Note: If you work outside of the home and have to commute to your workplace, that does not count as travel. Similar to how commuting to an employed job is not claimable against your employment income.

Go Get Saving!

I hope this list helped you find some hidden business expenses to bring your income tax bill down. Be sure to save or bookmark this page for reference when working on next year’s taxes. It’s easy to forget some of these savings.

As always, I highly recommend consulting with a professional to get the correct information for your business. This article is intended as a helpful guide, but some of the information may be misinterpreted or incorrect for your own situation or location. If you’re DIYing your taxes, be sure to read up on the CRA’s website for more information and step-by-step guides, and be sure to contact them directly for any questions you may have.

Here are just a few helpful CRA resources for reporting and filing your small business tax return:

• Report Business Income and Expenses
• Business Expenses
• Checklist for Small Businesses
• Small Businesses and Self Employed Income

If you’re new to starting your business, read through the following 4-part series on starting & setting up your Canadian business. It includes some important information and steps which you may have missed or be confused about.

• 1: Business Structure – Identifying & structuring your business
• 2: Provincial Registration – Registering your business name & PST/QST accounts
• 3: Federal Registration – Obtaining a business number & registering for GST/HST
• 4: Licensing & Insurance – Municipal business permits/licences & small business insurance