The Comprehensive List of Tax Deductions for Small Businesses

The Comprehensive List of Tax Deductions for Small Businesses

As a small business owner, you’re always seeking methods to either cut costs or boost revenue, all while managing the ongoing tasks of running a business every day.

Even though dealing with taxes might be the last thing on your mind, taxes are a crucial aspect of any successful business that can either save you money or cost you dearly.

While you might be familiar with deductions for expenses such as rent and office supplies, there are also numerous less obvious tax deductions available.

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What are tax deductions?

Tax deductions are like a small business owner's best friend. They allow you to subtract a certain amount of money from your total taxable income as permitted by the Canada Revenue Agency (CRA). Qualifying for enough tax deductions can sometimes push you into a lower tax bracket, reducing the amount of taxes you owe for the year. That's why it's crucial to claim every eligible expense, no matter how small, as they can add up significantly.

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What kinds of expenses qualify as business expenses?

Any expenditure related to running your business is considered a business expense and can be claimed as a deduction on your tax return. Tax-deductible business expenses typically fall into three categories:

1. Items exclusively used in operating your business. For example, a cleaner uses disinfectant and cleaning brushes, while an uber delivery service needs gas, insurance, and occasional repairs.
2. Items exclusively used for your business in the space where your business operates. If you rent office space, the rent and utility costs incurred are a business deduction.
3. Items used while conducting business. For instance, if you use your car to travel to client meetings and treated the client to a meal, you can deduct the round-trip mileage and the cost of the meal (up to a percentage) as a business expense.

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What are the most common tax deductions for small businesses?

1. Start-up costs: Includes equipment, machinery, supplies, legal, and accounting advice incurred when launching your business during the tax year.
2. Marketing and advertising fees: Costs related to promoting your business, such as business cards, flyers, signage, digital advertising, and website expenses.
3. Business and office supplies: Includes grooming supplies for a salon, tools for a plumbing service, and small office supplies like pencils, pens, and stationery.
4. Rent: Deductible if paid for property used in your business, including the office space.
5. Home office: If you use part of your home for business, you can deduct a portion of home-related expenses based on the size of your home office. 
6. Telephone, internet, and utilities: Deductible if used for business purposes.
7. Salaries, wages, and benefits: Includes gross salaries, CPP, and EI premiums paid to employees.
8. Independent contractors: Costs for freelancers or contractors hired for business-related services.
9. Meals and entertainment: Deductible up to 50% for business-related expenses like client lunches or outings.
10. Travel: 50% of the cost of meals, beverages, and entertainment while traveling for business, 100% of business travel costs. 
11. Delivery and shipping costs: Postage, delivery services, and related expenses for business purposes.
12. Professional fees: Legal, accounting, and bookkeeping fees for business purposes.
13. Motor vehicle expenses: Includes mileage, parking fees, fuel, insurance, maintenance, and repairs for business-related travel.
14. Accounting and tax prep software: Costs for software used for tax preparation and accounting purposes for your business.

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What are some of the lesser-known expenses your business can write off?

1. Business tax, fees, licenses, and yearly dues for commercial or trade organizations. These expenses are deductible, but you cannot deduct club membership dues or initiation fees if the primary purpose of the club is dining, recreation, or sporting activities.
2. Bank charges, management, and administration fees, including bank processing fees and the cost of ordering checks.
3. Interest incurred on money borrowed for business purposes or to acquire property for business purposes. Check the CRA website for limits.
4. Property taxes for the land and building where your business is located. Property tax related to workspace used for business purposes in your home must be claimed as a business-use-of-home expense.
5. Insurance, including all ordinary commercial insurance premiums you incur on any buildings, machinery, and equipment you use in your business.
6. Bad debt, which refers to any amount you're unable to collect from debtors. You can deduct an accounts receivable that won’t get paid if you’ve already included it as income for the year. You can also deduct the cost of recovering balances owing to you, such as the cost of a lawyer or collection service.
7. Private health services plan premiums, including payments made for you or for your employees and their dependents.