Tax Deductions for Self-Employed Entrepreneurs

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This week, Fiorella from CloudKeeping Accounting brings you her Top 5 Tax Deductions for Self-Employed Entrepreneurs.

Fiorella is a CPA, CA in Canada and international CPAA, with a master's in accounting. She creates simplicity for you as a business owner maintaining you compliant and ready for tax season without stress. When she is not crunching numbers and helping businesses grow, you can find her dancing while cooking Italian dishes.

Are you self-employed? What is a sole proprietor? 

 A sole proprietorship is an unincorporated business that is owned by one individual. You may have employees, but you own the company alone. 

There are several benefits to a sole proprietorship. Set-up is relatively low cost and mostly free of government regulation. The only requirement is that you might have to register your name with the provincial government. One of the drawbacks is that you will face unlimited liability for the company's obligations and debts.

You must report all income and expenses of both yourself and the company on your return.

 To save money as a self-employed, you need to maximize deductions and keep the receipts for all the allowed deductions.

Some potential write-off include:

1. Home office expenses

   The first strategy to save on income tax in a sole proprietorship is to maximize your home office's deductions which are calculated based on the portion of your house dedicated to your business office. Some business deductions that might apply are:

   • Rent

   • Utilities

   • Home insurance

   • Phone

   • Internet

   • Capital cost allowance

   • Utilities

2. Vehicle expense

   As a small business owner in Canada, you can deduct vehicle expenses like gas, insurance, maintenance, parking.

   The number of vehicle expenses you can claim is determined as a percentage of your business mileage over your total mileage in the year.

   The CRA requires you to maintain an accurate logbook to verify the amount your car is being used for personal and business purposes.

3. Accounting and Legal

   Another way to reduce your taxes is by deducting fees paid to your accountant to prepare your income tax return. Similarly, the amount you spend on legal fees in the ordinary course of operating your business is tax-deductible.

4. Meals and entertainment

   50% of the amount that you spend on meals and entertainment is tax-deductible. There are certain circumstances where you can deduct 100% of the cost of meals or entertainment. This includes:

   • Staff events or parties (maximum of 6 per year)

   • Meals provided for a registered charity fundraiser

5. Capital Assets

   Tax depreciation is a significant tax write-off for small businesses in Canada. Depreciated capital assets include furniture and fixtures, equipment, computers. These assets are written off over a period of time based on the CRA's specified depreciation rates.

   Tip: Make capital purchases right before year-end so you can take advantage of depreciation deductions on purchased assets. In the first year, only half of the CCA can be claimed.

The information provided on this page is intended to provide general information. The information does not take into account your personal situation and is not intended to be used without consultation from accounting and financial professionals. The author will not be held liable for any problems that arise from the usage of the information provided on this page.

Need some help to get your books organized? Have concerns about tax season? Want to review your business financial situation? Contact Fiorella at cloudkeepinginfo@gmail.com

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