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10 Common Business Expenses

As a business owner, you know that running a company costs money. Each month, you might pay for everything from office supplies to electricity. The government allows you to deduct these business expenses from your income at tax time—meaning you pay less in taxes. When you’re working with a tight budget, these tax deductions can make a big difference to your bottom line.

Next: 8 Business Operating Expenses You Can Deduct

1) Legal and General Business Fees

Your business is a legal entity, which means that you may need to deal with licensing, business taxes, compliance, and more. Many of these items come with a cost; fortunately, you can deduct those expenses at tax time. The government allows you to deduct:

  • Annual licence fees
  • Business taxes
  • Fees or dues for trade and commercial associations
  • Legal fees for advice on business setup and operation
  • Accounting fees for your company’s taxes

2) Business Advertising and Marketing

Do you advertise your company on Canadian media outlets? You might be able to deduct these costs. To qualify, your ads must target a Canadian audience using a Canadian newspaper, television station, radio station, or website.

Marketing and promotional costs also count as advertising expenses. That means you can deduct:

  • Billboards
  • Posters
  • Signs
  • Business cards
  • Brochures
  • Branded materials
  • Team sponsorship’s
  • Marketing fees

If you’re advertising in a periodical, such as a newspaper, special rules apply. You can deduct the full expense if:

  • Your ad targets a Canadian market
  • At least 80% of the issue is original editorial content

You can deduct 50% of your expenses if:

  • Your ad targets a Canadian market
  • Less than 80% of the issue is original editorial content

3) Shipping and Delivery Expenses

If your company ships or receives packages, you can deduct the costs from your income. This includes fees for delivery, freight, and express.

4) Vehicle Costs

Company vehicles usually come with a high price tag. The government allows you to deduct some of these vehicle expenses, including:

  • Licence and registration costs
  • Gas and oil
  • Insurance
  • Leasing fees
  • Interest on vehicle loans
  • Maintenance or repairs to the vehicle

5) Financial and Borrowing Fees

As a business, you might take out loans or owe money to suppliers. Often, these agreements include fees. You can deduct:

  • The amount of a bad debt
  • Interest on vehicle or property loans
  • Interest on vacant land
  • Interest on business loans
  • Fees, penalties, or bonuses you pay to service loans
  • Standby charges
  • Service charges
  • Interest on loans you get against an insurance policy

Keep in mind that some of these deductions come with limits. If you’re deducting the interest on vacant land, for example, you can only deduct up to the amount of income from that land that’s left after you subtract other expenses. What’s more, you can’t use your deduction to create an income that’s less than zero.

6) Utilities and Services

Utilities, such as electricity and oil, can eat up a big part of your budget each month. The good news? You can deduct those costs directly from your taxable income. Tax-deductible utilities and services include:

  • Electricity
  • Gas
  • Oil
  • Heating
  • Water
  • Internet
  • Cable TV
  • Telephone

Keep in mind that before you can deduct these services, you must use them to run your business and earn an income. You can deduct the entire amount of these expenses.

7) Business Use of Home Expenses

Do you run your business out of your home? If so, some of the money you spend to upgrade your home is going toward your company — meaning that you can deduct it from your income. The government calls these business use of home expenses. They include:

  • Utilities and services
  • Home insurance
  • Office supplies
  • Cleaning services
  • Maintenance and repairs

To claim these expenses as deductions, your home must meet one of the following conditions:

  • The space is your main place of business
  • You use the area on a regular basis, only to earn business income

Since your home is a shared personal/professional space, you can’t claim the entire cost. Instead, the government allows you to deduct a percentage of the costs. You can use any reasonable method to calculate this percentage. One easy option is to divide the square footage of your work space by the square footage of your home. If your office is 100 square feet and your home is 1000 square feet, you’d divide 100/1000 to get 10%. If your home costs were $1000 one month, you could deduct 10%, or $100.

8) Office Supplies

Every month, you buy a variety of supplies to keep your business running. This includes:

  • Paper
  • Pens and pencils
  • Letterhead
  • Stamps
  • Cleaning supplies
  • Push pins and paperclips

9) Capital Expenses

A capital expense is something you buy that adds long-term value to your business. Furniture is a capital expense—usually, you buy it once every few years. Other examples are:

  • Factory equipment
  • Desktop or laptop computers
  • Servers
  • Desks
  • Chairs
  • Upgrades and additions that add value to your property

It’s important to differentiate capital expenses from current expenses — the things you consume quickly, such as electricity or printer paper. Why does it matter if an expense is capital? Instead of deducting the whole expense at once, you deduct a percentage of the cost each year for multiple years.

10) Employee Expenses

Do you pay employees? You might be able to deduct some of these expenses from your income. Some deductible costs are:

  • Canada Pension Plan (CPP) contributions
  • Quebec Pension Plan (QPP) contributions
  • Employment insurance costs
  • Parental insurance plan premiums for your province
  • Workers’ Compensation plan costs
  • Sick-pay, disability, and income insurance plan premiums

Does your spouse or child work in your business? Their salaries are tax-deductible, as long as:

  • You pay the wages or salary
  • They do work that’s necessary for the business
  • You pay a reasonable rate given the person’s age and contribution

What happens when you pay your spouse or child in products? In that case, you should calculate the value of the product and claim it as an expense. It’s important to note that the child or spouse must also include that value in their income when filing taxes.

Expenses You Cannot Claim as Deductions

Not all business expenses are deductible. The government specifically states that you cannot deduct the costs for:

  • Legal advice and fees for buying capital property
  • Advertising with a foreign broadcaster, even when the ad is directed at a Canadian market
  • Employee salaries and wages
  • Money you draw from the business as the owner
  • Salaries of the owners
  • Room and board costs for your spouse and children
  • Expenses you pay when buying a capital property
  • Membership dues for associations if the main goal of the club is to eat, play sports, or do recreation activities

When you claim any of the Canada Revenue Agency’s business deductions, you must be able to provide proof in case of an audit. That’s where great record-keeping comes in—it’s a good idea to keep receipts, invoices, contracts, and other documentation. With QuickBooks Online, you can organize your business finances and stay ready for tax time.

Back: What are Tax Deductions?

Next: 8 Business Operating Expenses You Can Deduct

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