As an independent contractor, you need to be careful about which costs you claim as business expenses on your tax return. If you accidentally claim expenses that are not eligible, you may end up owing back taxes or face penalties. To help you out, here’s a look at five expenses that are not deductible but frequently cause confusion among independent contractors.
1. Clothing and Grooming
When you run a business, you want to look your best, especially if you are meeting with clients. That can involve investing in clothing, makeup, and grooming, but unfortunately, you cannot claim these costs as business expenses. By extension, you also cannot claim a deduction for coveralls, special shoes, gloves, or similar types of workwear.
2. Snacks While Working
If you buy snacks to eat while you are working, these are also not deductible. The only exception is for self-employed bicycle couriers and rickshaw drivers. If you have one of these professions, the Canada Revenue Agency sees some of your daily snacks as fuel to keep your bike going, and as a result, you get to claim a deduction just like truck drivers claim a deduction for petrol. You can claim a flat $17.50 for snack money for every eight-hour shift you work.
3. Coffee Shop Bills
Working from home as an independent contractor can be lonely, and you may occasionally want to get out and see the world. Unfortunately, if you work from a coffee shop for the day, you cannot claim your coffee and pastries as a business expense. That said, if you meet a client at an eatery, you can write off 50% of the cost as long as you discuss business. In addition, if you travel for your business, you may also write off half of your meal costs while on the road.
4. Personal Expenses
You cannot write off personal expenses as business expenses on your tax return. If you buy paper and pencils for your children to use, you cannot write off those costs as office expenses. Similarly, if you buy a computer or any other item for personal use, you cannot claim it as a business expense. Luckily, the CRA has a process in place for purchases that are for both business and personal use. Simply figure out which portion is for business use, and write off that percentage of the expense. For example, if you buy a computer that you use 80% of the time for work, 80% of the cost is a business expense.
5. Pet Expenses
Do you have a dog that keeps you company while you work? Does your shop have a resident cat? If you answer yes, you know the joys of working with your pet, but even though your pet may feel like an essential sidekick on the job, the CRA does not let you deduct pet expenses as business expenses. The exception is for working pets. If you have a dog that herds your cattle or guards your blueberries, his care and food are typically deductible as business expenses. In addition, if you are blind, deaf, or severely disabled and have a service dog, those expenses are deductible but not as a business expense; these expenses are part of your personal medical deductions. The CRA maintains a fairly extensive list of business expenses that you can write off. It’s important to understand what’s on this list so you can reduce your tax liability, but it’s also important not to claim items that aren’t considered business expenses.