As a small business owner, you can budget for your regular expenses — inventory, payroll, rent, etc. — as they’re fairly predictable, and accounting for them at tax time is straightforward. But what about those miscellaneous expenses that pop up throughout the year? They’re hard to plan for, and, if you overclaim them, you might provoke a tax audit. Luckily, there are ways to plan for these miscellaneous business expenses so you don’t get a headache at tax time.
Advertising is crucial to many businesses, so it’s good news that you can deduct ad expenses on your taxes. To be deductible, though, these expenses must be aimed at a Canadian market. No ad expenses are deductible if you’re advertising with a foreign broadcaster, but 100% of your costs with Canadian newspapers, TV, and radio are deductible. Magazine advertising deductions have special rules, so check with the Canada Revenue Agency to see what deductions apply in your case.
Meals and Entertainment Expenses
If your tax returns show too many entertainment expenses for your type or size of business, you’re waving a red flag that could get you audited. In general, you can only deduct 50% of your expenses for food, beverages and entertainment, and those expenses have to be reasonable given your circumstances. A few exceptions exist. If you’re in the business of providing food and drink, for example, these rules don’t apply; you can throw up to six office parties per year and deduct all expenses, as long as all employees are invited. Entertainment expenses include hospitality suites, cover charges, event tickets, and gratuities. Check with the CRA to learn the specifics and make sure you’re claiming and deducting these complicated miscellany properly.
Bank Charges and Interest
Have you taken out a loan to help expand your small business? If so, you should be glad to know that most of your interest charges are tax deductible, including charges for any property your company has bought. You can also deduct any fees or penalties you pay associated with a loan, plus interest on most loans made against insurance policies. Check out your options regarding the tax treatment of interest payments, since you may want to amortize some of them over five years. In some cases, you can even add your interest payments to the cost of the property involved rather than treating them as an expense. Just be aware of the restrictions that commonly apply to small business owners: You’re restricted on the amount of interest you can deduct for purchases of vehicles and vacant land, and, if you have a home office, you have to deduct interest on your home mortgage as an expense related to the business use of your home.
In addition, you can deduct all management and administration fees you pay for the operation of your small business. This includes bank charges. If you accept credit cards at your business and have to pay processing charges, don’t forget to track them using handy bookkeeping software such as QuickBooks and include them as an expense when you file taxes.
Understanding the rules regarding miscellaneous business expenses and keeping track of them all year can seriously boost to your bottom line at tax time.