Tax Deductions: Here’s What Your Small Business Will Gain

Man reviewing receipts for tax deductions

Truth be told, tax write-offs are sexy.

Not in a “Victoria Secret” sort of way, but a “task list longer than my arm with every single one of those bad boys checked off” kind of sexy. It’s incredibly gratifying. Loosely related, as a small business owner, you may find tax season to be incredibly unsexy.

Here, let us set the mood for you… You’ve been working 19 hours a day building your email list and growing your Instagram follower count. In the mornings, you’ve been doing online boxing classes because it’s the only thing that gives you any sense of stress relief. You’ve developed a solid customer-base, purchased your first scanner and your bank would be happy to increase your spending limit. You hustled, you survived, you made it through. And now, you demand a little respect.

Suddenly, you find yourself in tax season. Everything you worked seems to slip away in a check made out to the Canada Revenue Agency. That luscious cushion in your bank account is little more than a blueberry pancake now. Your income tax bill has really ruined things. Well, we are happy to share with you that it’s not over, mon coeur. We can help to make sure your business lives another day (and beyond).

Tax Deductions for Small Businesses, What’s the Deal?

If you are a specific flavor of human being, you love being your own boss (raises hand in air). There are tons of pros, but one of the major downers is having to take care of your own taxes. Well yes, hopefully you have the assistance of a seasoned professional (raises hand in hair), however, you need to be able to identify what is considered a tax deduction in Canada.

As a small business owner, you are allowed to write off a variety of expenses in order to lower the amount of money you owe on income taxes. Now, before you go writing off your new body-forming mattress and in-line roller blades, the expenses need to fit in the established criteria.

We’ll take a little venture into business tax write-offs, but you should always consult your tax advisor or CAP before claiming them on your tax return. Also, you’ll need the receipts. No, we’re not talking screenshots from your latest Bumble match, we’re talking about precise bookkeeping records from valid expenses. Oh, did you need help with that? We know someone (raises hand in air).

OUT FOR LUNCH

Well, how very generous of you! We’ll start with the popcorn shrimp and spinach dip, please. Since you’re a small business owner, certain meals can be considered a tax-write off. Now, don’t grab for the bill just yet. Generally speaking, you can deduct 50% of your food and drink purchases that quality. With that in mind, the meal needs to be related to your business and is accompanied by adequate documentation. This includes date and location of the meal, the business relationship you have with the individuals, as well as the total cost of the meal. Pro tip? Grab the receipt and write down notes about your dining experience on the back. That way your bookkeeping team (hey there!) can document this information for you. Bon Appetit!

WE APPROVE THIS MESSAGE

Advertising and/or promotions are absolutely deductible as a small business tax write-off. Posted a Facebook ad? Done. Developed a billboard in the middle of town? Write that one down. Passed out flyers? Don’t mind if I do. These are pretty obvious, but unless you crafted these advertisements on your own, there’s more you can deduct! You can include expenses from hiring someone who designed your business logo, the website you launched, your new batch of business cards, as well as the Girl Scout’s event you sponsored. What a marketing genius you are.

DRIVE A HARD BARGAIN

One of the most common small business tax deductions is associated with your vehicle. If you use your car strictly for work-related purposes, you can write off all of the costs to operate and maintain it. Truth. However, if you use it for a combination of business and pleasure, you can only deduct the costs that are related to the business side of things. You can do so by deducting the actual miles you drive for business or use the standard mileage deduction of $0.545 per mile driven. Other tax write-offs include fuel, oil changes, parking fees, toll roads, repairs and maintenance, registration, insurance, and more. That’s right, put it in drive and hit the road.

HOME IS WHERE THE OFFICE IS

So, yeah. Small business owners, near and far, are working from the comfort of their pajamas and furry slippers. With the pandemic came remote work, which converted many kitchens into conference rooms. Freelancers and small businesses can deduct $5 per square foot (up to 300 square feet) of their home that’s used for operating their company. In order to qualify as a tax write-off, you need to have a “home office” that’s used as your principal place for conducting business. That means, you can’t write-off said dining table. Just as you’d rent an office in a building or membership to a swanky co-working space, you can only write off a dedicated office in your home. Expenses associated include things like home insurance, property taxes, utilities, rent, and more. So, make yourself at home… and then, get to work.

MAKE YOUR MOVE

This one is a bit of an expansion of the previous tax write-off. Many of you may have had to make adjustments and move out of your previous office to work from home. If you moved during the pandemic and it was work-related, you might be able to fully deduct the costs associated with the move. That’s right, you put those movers to work and now it’s going to pay off! First, you’ll have to pass the distance test. If your new job location is at least 50 miles farther than your previous home, you are more than likely to qualify. However, if you only moved your business, there are still opportunities to write-off costs of moving business equipment, supplies and inventory. Be sure to keep good records and refer to your CPA, they know what they’re doing.

SUPPLIES AND DEMAND

We don’t know about you but buying office supplies is one of the great pleasures of being a small business owner. You can pick out your favorite ink pens, the kind that don’t smear when you accidentally glide your hand across the page. Oh, and those color-coded sticky tabs. They are the best! Not only are they tiny treasures, they are also tax write-offs. Anything from printers, pens, computers, work-related software, apps, files, yoga mats, mason jars, wigs, or edible gold foil can be a tax deduction. As long as you use it for your business, write that off.

DIAL IN, DIAL OUT

Like most companies these days, small business owners find themselves working online and/or on the phone. If these services are integral to your business, they can be tax deductions. Like many of these other expenses, you have to keep solid records if you also use them for personal reasons. For example, if you have a landline at home, you cannot deduct it as a tax write-off. However, if you added a second line that’s only used for work, great. Be sure you are only deducting the percentage allocated for business use when it comes to your cell phone and internet. In the event that you are ever audited, you’ll want to have an itemized bill with detailed records to prove that you’ve used your phone or internet for business.

POWER TRIP

These days, most small business owners are not traveling, and we are happy to support that decision while we are living amid the pandemic. Although, we are very positive individuals here at Alchemy Accounting, and we know this is not going to be the case forever. For a trip to qualify as business travel, it has to be necessary and basically super boring (aka, that trip around the Mediterranean with your secret lover is not a tax write-off, sorry). Travel deductions can include meals, lodging, Ubers, dry cleaning, shipping, parking, tolls, as well as your plane or train tickets. As always, keep extensive records. And have a lovely trip.

YOUR BILL OF HEALTH

As any small business owner will tell ya, health insurance can get pretty pricey. In addition to your insurance premiums, you can deduct a number of other out-of-pocket medical costs such as co-pays and prescriptions. If you are self-employed and pay for your own health insurance, you may be able to write off premiums for family members as well. Be sure to check the details because this offering becomes moot if you are eligible to purchase a plan through your spouse’s employer. You know what they say, health is better than wealth. Although, if you can write it off…

A LITTLE SOMETHING FOR THE KIDS

You gotta’ love them, right? Because at this point, it’s probably too late to give them back. The good news is that you probably pay someone to take care of them while you’re working. If that’s the case, you may be able to claim the Child and Dependent Care Credit in the US. Depending on your income, the credit can be worth 20-35% of your expenses. Similarly, adult dependents who are unable to care for themselves can qualify for deductions as well. It’s a little bit of good for doing good.

We hope that we’ve made tax write-offs for your small business a little sexier.

Okay, so maybe it’s not climbing Machu Picchu or diving with great whites, but you can infuse it with your own flavor, friend. This outline is just the beginning, there are so many tax deductions out there it’s impossible to reign them all in. Seriously, they are just wild! No, actually they are quite strategic and formulaic so it’s probably best you don’t deviate too far because you want to know what is the most unsexy thing ever? Getting audited.

That’s why you need to work with professionals (raises hand in air). We are Alchemy Accounting, and we are all about the boring stuff. That’s what really gets us going! And that way, you can focus on the fun. Win-win.

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Michelle Cooper

Michelle Cooper is a powerhouse entrepreneur, CEO of Alchemy Accounting & Bookkeeping, author of Confessions of a Money Rock Star, Your MoneyDate Journal, and co-author of the collaborative book, Women Rising. She has helped many business owners climb out of entrepreneurial poverty into the land of profit.