Tax deductions for home-based businesses
Running a business from your home offers numerous advantages. You can work when you want, you can blend your personal and business life as you wish, and you can deduct some of your household expenses against your taxes.
Figuring out your eligible expenses is easy if you keep your receipts and take a little time to learn these tax-saving strategies for home-based businesses. Of course, it’s always best to consult a qualified tax specialist for professional advice.
Canada Revenue Agency (CRA) offers clear guidelines concerning allowable expenses for entrepreneurs who choose to operate a business from home.
To begin, calculate the amount of space in your home used for business purposes. Let’s say you’re using a spare bedroom as your office plus a portion of your basement to store products, marketing materials and supplies. Add up that space and divide the number into the entire square footage (or metres) available within your home. For example:
• Spare bedroom/office is 200 sq. ft.
• Basement storage space measures 100 sq. ft.
• Divide 300 sq. ft into total footage of your home (say 1800 sq. ft.)
• Therefore, 16.6% of your home is used for business purposes.
You should be able to deduct 16.6% of all eligible home maintenance costs as home business expenses. That can add up if you remember to include receipts for:
• Home cleaning services, utilities, security alarm monitoring fees and telephone.
• Household supplies such as soap, tissues and toilet paper.
• Mortgage interest, home insurance and property taxes (if you own your home).
Think about the items you consume in your home office. As with any business, expenses incurred in the pursuit of income are tax-deductible at full value.
• Office supplies, including ink cartridges, printer paper, Internet access, file folders, pens, pencils and stamps.
• Professional fees paid to lawyers, accountants and advisors.
• Depreciation on office equipment, chairs, desks, lamps, computers and smartphones.
• Promotional expenses including marketing services, advertising, graphic design and customer giveaways (branded hats, shirts, etc).
• Admission fees you’ve paid to attend industry conferences or networking events.
• Meals and entertainment expenses (typically allowed at 50%).
And, don’t forget about automobile-related expenses. CRA is very clear on these particular deductions.
1. You can expense a portion of your automobile related expenses used for business purposes. Simply keep track of your distance traveled to meet prospects, connect with customers, conference with industry colleagues, fetch office supplies, attend networking events, visit your accountant or conduct market research.
2. Similar to the way you calculate business-percentage-of-home usage rates, divide the amount of distance used for business into your annual distance total and apply that percentage to all automobile related costs.
3. Apply that percentage to vehicle related costs including gas, maintenance, repairs, insurance and leasing.
This article is for information purposes only. Keeping up with current tax rules can be challenging. That’s why it’s best to work with a qualified tax specialist who understands current tax rules and how they may apply to your business.
To help grow your business, contact your Scotiabank Small Business advisor for information, resources and solutions.
Got any tax-saving tips for Canadian business owners? Please share your insights below.
By Roger Pierce