Getting the most out of your business tax deductions requires more than just the diligent tracking and filing of your expenses – to maximize your business returns, you need to know what you can and can’t claim come tax time. However, understanding what components of your business qualify for a tax deduction can be a challenge for many owners – you are busy enough as it is running your business. Prioritizing and tracking the expenses you can claim can fall to the wayside. Navigate CPA has put together a simple list of the best tax deductions for you to record and claim to make the most of your yearly tax return.
Client Hospitality: Building strong relationships are essential to business, and the Canada Revenue Agency understands this. When you host your clients and take them to events, you can claim that for a tax deduction. Relationships can grow stronger when there’s a connection, so why not use that tax break to your advantage and treat your clients by taking them to events you enjoy. These events give your customers a chance to get to know you better as a person, and allow you to receive a tax deduction for doing fun things you will enjoy! How much on the dollar will you get back? Connect with Navigate CPA to find out.
Rewarding Your Employees: The hard work and dedication of your staff should be rewarded, and the Canada Revenue Agency knows this as well. So how can you build loyalty with your employees? Taking them out for exciting and unique team building events benefits small business owners, as job satisfaction levels increase, but it is also a claimable expense. To receive a tax deduction for employee parties and outings, all employees must be invited to attend so make sure to pick a variation of events and themes throughout the year that all your employees can take part in. How much on the dollar will you get back? Connect with Navigate CPA to find out.
Vehicle Mileage: Whether you drive a little for your work, or a lot, claiming your vehicle mileage is simple. In fiscal 2020, for every kilometer you drive, the company can reimburse you, tax free, for 59 cents per kilometer for the first 5,000 kilometers (i.e. if you drive a personally owned vehicle 1,000 KM’s for business purposes you can receive $590 tax free from the company). Depending on the vehicle you drive, the actual cost of driving is closer to 20 cents per kilometer, so tracking and recording your mileage can add up to extra money that’s tax-free. To regularly track your distance, consider an app for your smartphone or go the old fashion route by printing out a simple spreadsheet to keep in your glovebox. Does your commute qualify as vehicle mileage? Connect with Navigate CPA to find out.
Company Owned Vehicle: If your vehicle needs an upgrade, then leasing it as a company owned vehicle will allow you to claim up to $800 a month in fiscal 2021 for the cost of that lease. You are allowed to use a company owned vehicle for personal purposes, but you do pay personal tax via a taxable benefit at year end. Make sure you fully understand claiming your Company Owned Vehicle – contact Navigate CPA here.
Home Office: Claiming your home office on your taxes opens up deduction possibilities, such as mortgage interest, insurance, property taxes and utilities, to name a few. There are rules on how much time you must spend working in your home office to allow you to claim it on your taxes, so consulting with an expert Calgary small business accountant will allow you to make the most accurate tax filing. Connect with Navigate CPA for help calculating the percentages of your bills that you can claim on your taxes.
Investing In Canadian Privately Held Companies: Investing in a Canadian small to medium business is not just good for your taxes, it is good for the economy, and it is good for your fellow business owners. There are many great advantages to starting your own small business, here are two of them:
Benefit 1: in BC for fiscal 2021 and on, when you earn income in a privately held company, you only pay 11% tax on those earnings. This allows you to invest 89% of your money in new business ventures or the stock market. As an employee of a company, depending on the tax bracket you are in, many pay 35% tax which would only allow them to invest 65% of their money. There is a substantial difference in investment potential.
Benefit 2: in fiscal 2021, if you sold a business for $892,218, you would pay zero in tax (note there are several restrictions on the type of business that qualifies). This is one of the strongest tax deductions that are available to you as a Canadian resident and should be carefully considered as you plan your career. The Canadian government provides this tax benefit as an incentive to you to start your own business.
To get a better idea of how to invest your funds in a Canadian privately held company, contact Navigate CPA today.
Disclaimer: tax rules change frequently and can depend on your individual circumstances. The above is not to be relied upon as tax advice and is meant for information purposes only. Please consult a tax professional.