Claiming Your Business Expenses:Essential Guidelines

It's important to keep track of your tax-deductible business expenses

May 14, 2022

Are you an entrepreneur looking to write off some of your business expenses? If so, you're in luck! Many things can be deducted as a business expense, from the gas you put in your car to the food you buy for meetings. And one way to do that is by claiming business expenses on your tax return. But it's not as simple as just writing off anything and everything you incurred while doing business. There are specific rules and regulations governing what is and isn't a deductible expense. This guide will help you understand how to claim your business expenses and the tax obligations for doing so.

What is a Tax Deduction?

Tax season is the time of the year when you can claim some deductions to reduce your tax liability. The most common ones are medical expenses, donations, and business expenses. However, you may not know that there are other expenses that you can claim as deductions.

For more information about the top 3 business expenses that are tax-deductible, please view our article by clicking here, 3 Business Expenses That Are Tax-Deductible in Canada

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What are Business Expenses?

The Canadian Revenue Agency (CRA) defines the difference between business and personal expenses. A business expense is an expenditure incurred in the course of carrying on a business. It includes:

  • Salaries of employees whose primary duties are to sell or service goods or services, such as salespersons, clerks, and drivers
  • The cost of materials purchased for use in the course of carrying on a business (including office supplies)
  • The cost of tools used for work purposes and equipment necessary to carry out the work activity.
  • Advertising
  • Interest
  • Office expenses, including rent and utilities

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"There may be liberty and justice for all, but there are tax breaks only for some." -Martin A. Sullivan

What are Tax-Deductible Business Expenses?

Many business expenses can be deducted from your income when filing your taxes. This can result in significantly lower taxes and a more significant return. However, some expenses cannot be removed. Therefore, it is essential to understand the difference to make the most of your tax situation. The most common business expenses which can be deducted are those which are considered to be "necessary and reasonable." This includes items such as:

  • Advertising and marketing expenses
  • Business insurance
  • Business travel expenses
  • Motor Vehicle Expenses
  • Car expenses
  • Office supplies
  • Professional Fee

What Motor Vehicle Expenses Can Self-Employed Claim?

If you use your vehicle for both personal and business purposes, you can only claim a portion of the vehicle expenses directly related to using the vehicle for earning the income. If you use your vehicle for both business and personal use and end up with a list of expenses similar to this one:

For example:

What Meal and Entertainment Expenses Can be Claimed?

According to CRA, the maximum amount you can claim for food, beverages and entertainment expenses is 50% of the least of the following amounts: the amount incurred for these expenses, an amount that is reasonable in the situations. 

For example:

If you hosted a client for lunch at a restaurant, the bill might look something like this:

What are Non-Tax Deductible Business Expenses?

There are also several expenses that you cannot claim as tax deductions. This means that they are not considered when calculating your taxable income. Non-tax deductible business expenses include personal expenses, capital expenses, and expenses related to earning income from investments or other businesses. 

How do you Claim your Tax Deductions?

The Canada Revenue Agency (CRA) is strict regarding what is and isn't deductible. You may have heard about people who "fudge" their expenses or take advantage of loopholes in the system. Some try to claim the costs that they know aren't deductible at all, such as personal purchases or items they use at home - not just those related directly to their business. The following is a list of things that you need to keep in mind when claiming your business expenses:

  • Document any expenditures that are related to your business. This includes but is not limited to travel, entertainment, and product costs.
  • Keep receipts for all of your purchases if they are needed later on.
  • Keep track of all of your vehicle's mileage you have accrued while conducting business-related activities.
  • Keep receipts for any additional items that may be deductible, such as parking fees or tolls paid while conducting business-related activities.
  • Make sure to use the proper form when filing taxes to avoid any inconvenience.

Ensuring You Can Claim Business Expenses:

There are three conditions that you about when you’re thinking about claiming business expenses in Canada:

1. Claim a reasonable business expense

According to the CRA, any expense directly related to your business activity is considered a reasonable business expense. This includes advertising, office supplies, rent, utilities, etc. However, they do not allow for personal expenses, including entertainment, travel, meals, gifts, etc., to be claimed as a business expenses. 

2. The direct relevance of the expense to your business

You can only deduct a portion of the business expense directly related to your business. In addition, you must know the difference between using and buying a vehicle for personal and business purposes.

For instance:

If you are on business travel either by airplane or train, you can deduct 50% of your travel and meals expenses as this business trip is directly related to your business. 

3. Keep a record of business expenses:

Last but not least, all the business expenses need to be documented. This will help you keep a record of the expenditures that you spent for the company. For this purpose, keep receipts of all business expenses to claim those expenses easily.

The Bottom Line!

Because business expenses can be a pain to keep track of. Being an entrepreneur, you need to know what expenses are deductible from your business income. Therefore, it's pretty wiser to keep records of those expenses. We hope that this article might have helped you claim your business expenses. If you have any concerns about business expenses, feel free to contact Yogi & Associates either online or visit our office located in Mississauga to get authentic information regarding tax-deductible business expenses.

Laila Batool

Executive Journalist

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