Understanding Small Business Tax Deductions In 2023

February 20, 2023 Andrew AdolphAudits

As a small business owner, becoming informed of the tax deductions you can take advantage of is key. Let’s discuss some important ones to help your business thrive!

What is a Tax Deduction?

Before we dive into the different deductions available to small business owners, let’s first establish what a tax deduction is. A tax deduction is an expense that can be subtracted from your sales. The difference between the two is your profit. Profit times tax rate equals tax payable. Therefore, you want to make sure you claim all expenses, including some you might not think are expenses.

In Canada, businesses can deduct expenses that are “ordinary and necessary” for the operation of the business. This means that the expense must be a link to the income-generating purpose of the business. Often, things that are legitimate business expenses for one business are not legitimate for another.

Common Small Business Tax Deductions

So, now that you know what small business tax deductions are, here are the most common small business tax deductions available.

Start-up Costs

Let’s be honest; when it comes to start-ups, you’ll be looking to save every penny you can until you have some positive cash flow. If you’ve recently started a small business, you might be eligible to claim things like developing a business plan, researching potential markets and products, and advertising and marketing expenses.

Office and Equipment

Office and equipment expenses are a common part of business operations. Small business owners can claim deductions on items they use to facilitate their work, such as computers, desks and chairs, printers – any item essential for the effective running of company activities.

Travel Expenses

If your work takes you on the road, then reap some of those travel expenses! You could be eligible to deduct airfare, car rental fees, hotel stays and restaurant bills, which can help offset business costs. Keep all relevant receipts and include notations with the purpose of the travel!

Insurance

Insurance is an important financial tool for businesses of all sizes. It helps protect them from unforeseen costs, such as natural disasters or legal action, while also providing peace of mind that no matter what happens, the business is covered. Insurance also offers tax advantages: premiums can be deducted as a business expense and can help businesses offset any losses.

Interest and Fees

Fees on business accounts are always higher than they are on personal accounts. Maybe that is because the banks know you can deduct it as a business expense. Interest expense is deductible, but you have to be careful. Interest on a personal credit card you used to buy stuff for your business will not be allowed. Interest on credit issued to the business generally is deductible, but again, if the loan is made out to you personally, the interest is not deductible.

Home Office Expenses

If you use part of your home exclusively for business purposes, you may be eligible to claim for the home office deduction. This deduction covers the costs of maintaining and operating the home office, such as rent, utilities, insurance, and repairs. The amount is prorated to the for the portion of the home being used only for business.

Employee Benefits

Obviously, salary is deductible, but if you provide employee benefits, such as health insurance, retirement plans, and educational assistance, you can deduct them as business expenses!

Tax Preparation Fees

Hiring a tax accountant to get the most out of your taxes can not only lead to more money saved, but, even better, it counts as tax-deductible. If you hire a tax professional to prepare your business taxes, you can deduct the cost of their services.

Charitable Contributions

Probably the most feel-good small business tax deduction you can get can come from your business making a charitable donation. If you make charitable contributions, you can deduct the value of the items donated.

Not All Expenses Are Deductible

Not all expenses are deductible. For example, interest and penalties on late returns or remittances can be killers, and they are specifically not eligible. Member of a yacht club? Not deductible. Advertising in a US publication that targets Canadians? Not deductible. That last one is a relic from the 70’s and 80’s but it’s still on the books.

But that is not all. This is why it is important to speak to a tax professional like GTC Gateway Tax CPA Inc.

Small Business Tax Deductions: The Bottom Line

Understanding small business tax deductions can help you reduce your tax bill and maximize your tax savings. Be sure to consult with a tax professional to ensure that you are taking advantage of all the deductions available. You can book a free consultation with me or visit my blog for more info. Thanks for reading!

Andrew Adolph

Andrew Adolph is a CPA and former CRA auditor with 25 Years of experience. He helps businesses to not par any more in sales taxs than the law says they must and acts as an advocate for you if you are being audited, so you can fous on your business.