As a small business owner, you know that budgeting for regular expenses, such as inventory, payroll, and rent, and accounting for them at tax time is easy, because they’re predictable costs. But what about those miscellaneous expenses that pop up throughout the year? If you claim them improperly, you might provoke a tax audit. If you don’t include them, you miss out on valuable deductions that impact your business’s bottom line. Plan for these miscellaneous business expenses now so you get all the breaks you deserve at tax time.
Advertising Costs Are Miscellaneous Business Expenses
If you advertise your business, your advertising expenses are tax-deductible miscellaneous business expenses when you aim your ads primarily at a Canadian market. Advertising with a foreign broadcaster doesn’t earn you deductions, but 100% of the ad dollars you spend on Canadian newspapers, TV, and radio ads are deductible. Magazine and periodical advertising deductions have special rules, so check with the Canada Revenue Agency (CRA) to see what deductions apply to your business.
Count Meals and Entertainment Expenses
If your tax returns show too many meals and entertainment expenses for your type or size of business, you’re waving a red flag that could get you audited. In general, you can deduct only 50% of your expenses for food, beverages, and entertainment, and those expenses must be reasonable for 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 a 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 for the specifics, and make sure you’re claiming and deducting these miscellaneous business expenses properly.
Miscellaneous Expenses Include Accounting and Legal Fees
Keep track of fees you pay for consultants and services from outside professionals who advise you on business matters, because those miscellaneous expenses are tax deductible.
- Your deductions include accounting, legal fees, and tax preparation fees, such as costs of preparing and filing your GST/HST returns and your income tax returns.
- If you pay accounting or legal fees for professionals to prepare an objection or appeal of an income tax assessment, Quebec Pension Plan or Canada Pension Plan contributions, or employment insurance premiums, they count as miscellaneous business expenses.
- Before taking the deduction, make sure you reduce the full amount of these fees by any reimbursements you receive.
You can’t deduct legal and other fees related to buying a capital property, but you can add such fees to the property cost.
Interest and Bank Charges Count as Miscellaneous Business Expenses
Are you paying back a loan for expanding your small business? If so, most of your interest charges are deductible as miscellaneous business expenses, including charges for any property your company bought. You get deductions for any fees or penalties you pay associated with a loan, plus interest on most loans made against insurance policies. Check out your options regarding tax treatment of interest payments, and consider amortizing them over five years. In some cases, you can add your interest payments to the cost of the property involved rather than treating them as miscellaneous business expenses.
Keep in mind that as a small business owner, you have some restrictions, such as on the amount of interest that’s deductible for purchases of vehicles and vacant land. If you have a home office, deduct interest on your home mortgage as an expense related to the business use of your home.
Deduct all management and administration fees you pay for the operation of your small business, including bank charges. If your business accepts credit cards and pays processing charges, tracking these miscellaneous expenses in QuickBooks simplifies including them when filing your tax returns.
Understanding the rules regarding miscellaneous business expenses and keeping track of expenses with QuickBooks all year boosts the bottom line of your small business and helps it grow. With QuickBooks Online, you can organize your business finances and stay ready for tax time. Try it free for 30 days.