What Is – and Is Not – a Business Write-Off?

What Is – and Is Not – a Business Write-Off?

Money | Posted by YouInc.com - November 17, 2014 at 1:00 am
1896
SHARE

As the tax deadline slowly rolls around again, business owners big and small often find themselves digging through bursting files and crumpled receipts for a year's worth of write-offs. As an entrepreneur, you know that write-offs are the only way to keep your tax bill manageable, and also that self-employed Canadians are much more likely to be audited, but do you know what's a legitimate write-off and what's just wishful thinking?

Technically speaking, explains Toronto chartered accountant Rita Zelikman, “an expense can generally be written off if it was incurred in the pursuit of earning income.” Most people have a vague idea of what qualifies – office supplies, the company car, travel expenses, etc. – and then a whole lot of questions about the rest. In the maybe pile, depending on how you use them, is rent, food/entertainment, furniture, charitable donations, books and even coffee.

Frustratingly, there are no hard and fast rules to simplify the tax lives of entrepreneurs. “It's either deductible or it's not, based on the given situation,” says Zelikman. This can make for some confusion, but also for creativity. “I once saw the cost of breast augmentation deducted,” she says. “The client was an exotic dancer.”

Depending on the nature of your business, of course, a wide range of write-offs offers all kinds of wiggle room. On the CRA's list of lesser-known write-offs are memberships and subscriptions, maintenance and repairs, meals and entertainment (for clients and employees), insurance and property tax.

Within these loose guidelines, Business News Daily reported that last year saw landscaping costs (for those with a home office), body oil (for a professional bodybuilder), and cat food (for the office cat, who kept office rats away) all allowed as business expenses. That said, there are some expenses – no matter how integral to your business – that are always considered personal, like clothing (unless it's a uniform), dry cleaning (even if it's a uniform) and golf/gym memberships.

A great place to start, whether you're preparing your own taxes or hiring an accountant to do them for you, is with one of many online checklists. Start a year in advance, label an accordion file (or something like it) with categories, and file and store receipts like a fiend. “That way you won't miss any deductions and you'll have receipts in case of audit,” suggests Zelikman.

Nobody wants to hear the A-word, but clever business owners know the CRA has ramped up both their auditors and their “spot checks” – a letter to those whose returns have lots of expenses asking for a closer look at deductions. “My advice is therefore to claim what is rightfully deductible and not to overshoot, since having too many expenses will put you on the radar for audit,” says Zelikman. If you are audited, this is an ideal time to have all your receipts ready, organized and completely legit.

Filing taxes as an entrepreneur can feel overwhelming, but the good news is there are many better trained people to handle this stress for you. “People that use a professional to prepare their taxes can rest assured that more often than not, their taxes are properly prepared with all the correct deductions,” says Zelikman. (And, for the record, your accountant's bill is a definite write-off for next year.)

Tags: write-offs, value offer, taxes, scotiabank, money, finance, entrepreneur, accounting, profiles

Comments
Featured Members
Jane Rusin
d'avi knitwear
Judy Simpson Whale
All About You Video Productions
See All   ► Recent Activity Recent Activity
Digipact Media joined YouInc
depositfix joined YouInc
Jen Stokes joined YouInc
dhanrajplastics joined YouInc
CTnorthlakes joined YouInc
SacheWellness joined YouInc
Lalit Mittal joined YouInc
Deepika Mathur joined YouInc