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Exactly what can I Claim As a Business Expense

One of the first questions asked by a new business owner is "What can one claim as business expenses?"

Under the Tax Act, there isn't any true definition of what constitutes an allowable deduction against business or professional income. Essentially, any expense incurred directly related towards the operation of your business or in direct relation to earning professional earnings are an allowable deduction. It would be impossible to list every deduction allowed in computing business income, because the theory is that, any expense incurred when it comes to earning income is deductible. business expense There are specific restrictions and exceptions to the guideline.

In assessing whether expenses are deductible, first apply the two simple requirements of a deductible expense:

The expense has to be incurred when it comes to earning income and;
The expense should be reasonable in the circumstance

There are some common items that are regularly deductible, for example:

Rent for work place
Buy office supplies over
Wages & Benefits
Business Memberships
Internet Access
Promotional gifts
Business Cards/Letterhead

But think about lower than common expenses including Commercial dog food?

If you attempt a store, commercial dog food would be a reasonable expense. expense account Imagine if you have a vehicle repair facility though? Can you justify the price? In the event the dog were on-site A day daily, and free to roam your building after hours, you can reason that this can be a guard dog for the purposes of protecting your business, therefore, food, vet bills and related expenses could possibly be claimed.

In respect to automobile expenses, contrary to popular belief, you can't claim 100% of your family vehicle like a business expense. expenses calculator The personal use percentage of automobile expenses must be calculated since they are not deductible. This really is generally done with the help of a mileage log. In reality, if you do not possess a mileage log to aid your claim for automobile expenses, CRA can likely deny your claim. All expenses are then pro-rated between business and personal use. Typical vehicle related expenses may include:

License and registration fees
Fuel & Oil
Repairs & Maintenance
Loan Interest
Lease costs

Most new businesses begin from a house office, therefore, there are numerous of things that you can claim based on the business/personal use portions, of household related expenses; these items generally include:

Mortgage Interest
Property Taxes

In similar fashion to automobile expenses, you have to prorate the expenses based upon the quantity of space work occupies (generally using size) vs. the whole house. For example, in case your property is 2,000 sq. ft., as well as the office occupies 100 sq. ft., choosing eligible to a deduction of 5% of the total household costs; obviously, this is at the mercy of 2 conditions:

The space should be used solely for that purposes of earning business income;
The space should be used since your principle office in places you generally meet customers.

A fairly recent change to the Taxes Act has added an execllent business deduction: Premiums covered private medical insurance plans are 100% tax deductible, whereas they utilized to only factor to the medical expense credit. This is a great way of giving yourself and your loved ones 'benefits' with before tax dollars.

Before you decide on any claims for expenses, it is advisable to consult an accounting professional to ensure your claim will withstand CRA scrutiny. The onus is for you, the taxpayer, to warrant the reasonableness of any deduction.

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