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Now viewing: February 2018

Income Tax Deductions for Self-Employed People

Posted February 26, 2018

Tax season is bearing down on us once again, and now is a good time to start working on getting your paperwork and receipts in order to make tax time as low stress as possible (we aren’t going to aim for stress-free, because this is taxes we’re talking about). For self-employed people, this is the time to get on top of things, rather than waiting until the last minute.

The first step is knowing what you can claim as a deduction. Actually, this step should have been taken months ago, so you could have kept all the receipts that you will need to calculate your expenses and therefore your deductions, but we’ll assume that you have every business-related piece of paper that came into your house somewhere.

  • Home Office Expense: If you use part of your home/apartment for business use, you can claim a number of expenses associated with it (mortgage interest, home insurance, home repairs, utilities, etc.). There are conditions, however—you will only be able to claim a percentage of the expenses based on the percentage of your house that is used for business use and the amount of time you spend doing business-related things in that space. We recently went into detail on this very subject.
  • Rented Office/Business Space Expense: If you rent a space to conduct your business, all of these expenses can be used as deductions.
  • Business Use of Car Expense: If you use your personal vehicle to generate income, you can claim a percentage of the costs associated with your car. This will be based on mileage—mileage used for business versus mileage used for personal, so keeping a mileage log will be required.
  • Meals and Entertainment Expense: You can claim 50 percent of business-related meals and entertainment.
  • Capital Cost Allowance (CCA) Expense: If you would like to claim a Capital Cost Allowance on items like purchased computers, vehicles, or office furniture, this is probably something to discuss with your accountant. There are rules governing what can (or must) be claimed on a CCA, and also rules on how to claim the diminishing value each year, as well as rules about how to claim a profit if you sell an asset that you have claimed as a CCA.

There are many other expenses that can be used as deductions to counter income when calculating your taxes owing—cellphone, internet, conventions, annual dues and fees, legal and accounting fees, office expenses, etc. This list is not meant to be exhaustive; talking to your accounting professional is the best way to find out all the things you can and should be keeping track of and claiming as expense deductions.

Contact Shaw & Associates Chartered Accountants to help you out with your financial needs and tax planning and to give you the advice and services that will take you from where you are to where you want to be with your business. One complimentary meeting with us will put you and your business on a more profitable and positive path.


How Much Can You Really Claim For Your Home Office?

Posted February 1, 2018

Self-employed people working out of their own homes may claim business expense deductions on their income taxes for part of their home expenses. There are a number of conditions for this statement, however.

As per Revenue Canada, you can claim part of your home insurance, utilities, cleaning supplies, maintenance and repairs, and a portion of your mortgage interest, property taxes, and Capital Cost Allowance (CCA) on your house. There is a note to be made if you claim your house as a CCA, however—you will need to declare capital gains and recapture when you sell your house.

This is a discussion to have with your accountant—how to deal with all the complexities if you begin the process of claiming a Capital Cost Allowance on your house (and if you should even do this in the first place).

Unfortunately, even for the simple expenses, it is not as easy as recording these expenses and claiming them on your income taxes. Revenue Canada requires that if you are claiming a workspace-in-your-home expense deduction, you would then reduce the amount that you claim by a percentage of your office/work space versus the total finished area of your house, and then also take a percentage of how many hours per day you spend working in that area versus a 24-hour day.

For example, if you have a 1,000 square foot house and your workspace is 100 square feet, you can only claim on 10% of your house expenses. Assuming you work eight hours per day, five days a week, you would then further reduce your claimed expenses to 24% of that subtotal.

You will also be required to reduce the deduction if you do not operate this business year round (for example, if you run your business six months of the year, you would further reduce the amount you would claim by another 50%). If you rent, the same conditions will apply—you can claim part of your rent and any utilities you pay, with the same reductions for percentage of your living space and percentage of time you spend working in this space.

Another note is that the amount of the deduction you claim cannot reduce your income to a loss. Expenses greater than the amount used to offset income can be carried to the next tax year, however.

This all adds up to a workspace-in-your-home expense deduction that can be surprisingly small for businesses working out of their own homes. Another discussion to have with your accountant would be comparing scenarios of working in your own home versus renting or buying a dedicated workspace outside of your home. Your accountant could help you figure out when it would become a good financial move for you to consider renting a dedicated space rather than working in your own home.

Contact Shaw & Associates Chartered Accountants to help you out with your financial needs and tax planning and to give you the advice and services that will take you from where you are to where you want to be with your business. One complimentary meeting with us will put you and your business on a more profitable and positive path.