Starting a side-gig, freelance work, or small home-based business is a great way to supplement the income you make from your main employment.
When I started blogging and providing part-time web design services, I became interested in learning how to protect my net income, expense the appropriate costs, and minimize my taxes.
To achieve the above, I researched small business deductions and tax write-offs available to home-based businesses in Canada. According to the Canada Revenue Agency (CRA) –
In general you can deduct any reasonable current expense you paid or will have to pay to earn business income.– CRA
Home Office/Self-Employed Tax Deductions in Canada
Here are some of the more common expenses you can deduct from your home-based business income:
1. Business Use Of Home Expenses
You can deduct business-use-of-home expenses based on the proportion of your home that is being used as office space. To claim this expense, your home either has to be your principal place of business; or you use the space only to earn business income and use it on a regular and ongoing basis.
To calculate how much of your home expenses are deductible, divide the area of your home office by the total area of your home.
For example, say your home is 2,000 sq. ft., and your office space is 200 sq. ft. The calculation shows that 10% of some home expenses may be eligible as deductions (i.e. 200 / 2000).
If your home office also serves other personal purposes, you should calculate the proportion of business to personal use and apply it to the calculation above.
Deductible expenses include heating, electricity, water, home insurance, mortgage interest, cleaning supplies, property taxes, repairs, and maintenance.
2. Home Office Supplies, Fixtures, and Equipment
Office supplies such as printer paper, paper clips, pens, postage, ink cartridges, etc., are fully deductible.
Office fixtures and equipment, including desks, chairs, filing cabinets, computers, lamps, software, and such, are considered capital items and can be depreciated over several years based on Capital Cost Allowance rules.
3. Vehicle Expenses
If you use your car for business purposes, for example, travelling to meet clients, purchasing office supplies, visiting your accountant, or attending training, you can deduct some of your vehicle expenses.
You must keep a detailed travel log indicating dates, destinations, purpose, and distance travelled. Deductible expenses include fuel costs, parking tickets, insurance, leasing costs, maintenance, and repairs.
Deductible expenses should be based on the business percentage use. Expenses incurred from using the vehicle for your personal errands do not count.
You can also deduct depreciation on the car if you own it (up to 30% per year).
Related: Work From Home Jobs for Moms.
Costs incurred from advertising your home business can be expensed. The deductible amount varies depending on the type of advertising:
- Canadian newspapers, television, and radio: 100% deductible
- Online advertising: 100% deductible
- Business cards: 100% deductible
- Print – periodicals and magazines: 100% if editorial content is 80% or more; 50% if editorial content is less than 80%
- Foreign broadcasters: Not deductible.
5. Meals and Entertainment
50% of the amount you spend on business-related meals and entertainment is deductible.
If the entertainment relates to staff events or parties (up to 6 events/year) or fund-raising events benefiting a registered charity, 100% of the cost can be deducted.
Related: TurboTax Coupon Code.
6. Accounting, Legal and other Professional Fees
These include fees you pay to professionals as part of running your business. Fees paid to lawyers, accountants, and other business consultants are fully deductible.
You can also deduct fees for membership in professional associations.
7. Business Insurance
Premiums for any specific insurance taken to cover your business operations, liability, or equipment are considered deductible expenses.
Life insurance premiums cannot be deducted unless your life insurance policy is used as collateral for a business loan.
8. Interest on Loans
Interest paid on money borrowed to finance your business is deductible. The same goes for bank charges and service fees.
9. Trade Shows and Business Conventions
You can deduct the cost of attending up to two conventions a year. The convention should relate to your business.
10. Charitable Donations
Similar to your personal charitable donations, you can claim a deduction for charitable donations made by your business (up to 75% of your net income).
Note: Business-Use-of-Home Expenses and charitable donations cannot be used to create or increase a loss for your business. However, eligible expenses not covered by income in a current year can be carried forward indefinitely and deducted in future years.
Managing your business’s financial accounts and filing a tax return can be challenging. To make life easier, keep good records and all receipts!
Ensure you take advantage of all the available home office expenses to maximize the tax benefits of starting a home-based business.
TurboTax is an excellent software for filing your taxes, and if you are filing more complicated returns, including those with freelance income, you can look at their Self-Employed package.
On TurboTax’s Website
- Fees: $0 to $34.99 (Get 15% discount)
- Promotion: File taxes for free if you have a simple tax return
- Devices: Desktop and mobile apps
You can also check out WealthsimpleTax, a free tax software that accepts donations. This software handles both employed and self-employed income, as well as investments. Learn more in this review.
If things get too complicated or you’re unsure of how to proceed, consult with your accountant or use a service like H&R Block.
Lastly, you can use Benji to automatically find tax write-offs throughout the year.
Easily Find Tax Write-Offs For Your Small Business
Benji makes it ridiculously easy to find tax write-offs, with self-employed Canadians finding $8,672.19 in tax write-offs per year, on average.
Sign up in minutes and start tracking your business expenses for free—no credit card required. If you need more horsepower, you can easily upgrade to a paid plan.
Benji is currently available for iPhone users operating as sole proprietors in the US and Canada.
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