Tax Break Tips for the Self-Employed
With tax season quickly approaching, it’s time for Canadians to start organizing their receipts, invoices and financial records in preparation of the April 30th deadline to file income taxes. If you’re self-employed, you actually have a little more time to prepare. Self-employed individuals (and their spouses) have until June 15th to file with the Canadian Revenue Agency. Just keep in mind any tax balance owing from previous years is still due on or before April 30th.
But just because you have some extra time to file doesn’t mean you should delay getting started on your paperwork. As a self-employed person in Canada, you benefit from a number of potential tax deductions not available to your 9-to-5 salaried counterparts. Why not use this extra time to prepare and take full advantage of them?
Here’s a quick overview of some tax break tips you should use to your benefit when filing your 2016 tax return this year.
Home Office Deductions
If you work at home you can deduct a reasonable portion of the costs related to your work space. That means things like property taxes, mortgage interest, home insurance, electricity, heating, maintenance costs, or rent.
There are some caveats though. According to the Canadian Revenue Agency, you can only deduct these workspace expenses if you meet at least one of the following conditions:
- The workspace is where you mainly (more than 50% of the time) do your work.
- You use the workspace only to earn your employment income. You also have to use it on a regular and continuous basis for meeting clients, customers, or other people in the course of your employment duties.
To calculate the amount you’re able to deduct you need to determine what percentage of your home you use for business purposes. For example, if your home office takes up 15 per cent of the total square footage of your home, you’re eligible to claim 15 per cent of the related expenses.
If you use your vehicle to earn business income you may be able to deduct a portion of the costs incurred while driving for work. Things like fuel costs, auto insurance, licence and registration fees, and general maintenance or repairs are all fair game. You can also claim part of the capital cost of a car or leasing payments, and the interest paid on them.
To be eligible, however, the CRA requires that you meet two requirements:
- You’re regularly required to work away from your normal place of business/office or at different locations (i.e. visiting clients or different worksites).
- You must pay the costs of work-related travel out of pocket (i.e. if a client reimburses you for any vehicle expenses like gas you can’t claim them).
If you plan on claiming vehicle expenses, it’s imperative that you keep a detailed logbook to track the total kilometres you drive for business purposes. Every time you take a business trip you should note the date, destination, number of kilometres driven, and the purpose of the trip. Also, be sure to note the total number of kilometres driven for the year (for both personal and business purposes).
Other Business Expenses
Office supplies and equipment aren’t the only expenses you can deduct when self-employed. There are restrictions on certain things, but generally speaking you’re entitled to deduct any costs incurred as long as they are directly related to earning income from your business.
This includes marketing and advertising of your business, licenses, subscriptions, telephone, internet, meals and entertainment for client meetings, business-related travel costs like air plane tickets or hotel accommodations, and salaries and wages paid to employees.
The list of deductible expenses is long and nuanced. To maximize your deductions and keep your tax expenses to a minimum, it’s best to hire a professional who knows the ins and outs of the system. A knowledgeable accountant will help ensure your business remains compliant and will help optimize your hard-earned profits.
If you’re self-employed and need help preparing for the upcoming tax season, give Ken and the Blue Sky team a call. We’re here to help: 289-466-5210.
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