Top Secret Tax Breaks Every Entrepreneur Should Know About

Kelowna accountantOkay, here’s the big secret…there are none! You’ll have to forgive my sense of humour on this subject because as a Kelowna accountant and business advisor, I constantly get asked by my clients about secret tax loopholes or special tax breaks they should know about.

Although there aren’t any special secrets or tricks, there are various expenses that many business owners don’t fully take advantage of or often approach in a way that is less beneficial to them.

Related: How Saying “Yes” Is Holding Back Your Business

 

Car Expenses

A lot of people own their own vehicles and use them for business then reimburse themselves for gas and maybe some repairs and maintenance.

That’s great except it’s not right.

There are very specific ways of writing off an automobile and to get the best deduction, you should follow those rules.

Kelowna accountant

For example, with a corporation, if you own a personal vehicle and you’ve used it for corporate use, you can submit an expense report for the number of kilometers you’ve used for business use and recover that on a per kilometer basis. If you are calculating by the kilometer, Revenue Canada says it has to be reasonable. Currently 52 cents per KM is what they’ve dictated but I have clients that deduct higher or lower amounts depending on the type of vehicle they’re operating and how it is used (on highways, off road, to carry heavy materials, etc.).

The great thing about that is the per kilometer deductions take into consideration the depreciation of the vehicle. If you’re only making deductions for fuel and repairs, you’re missing out on the depreciation of your personal vehicle through recovery on a per kilometer basis. It’s really important to take that into consideration when you’re deducting car expense since it can make a big difference in the long run!

 

Education

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If you’re doing education for business purposes then it is deductible. If you are doing some courses because you enjoy education then it is not really a deductible expense.

For example, if you want to take a course on the 7 Habits of Highly Effective People by the late Stephen R. Covey because you know you need to improve the way you manage your life, then it is absolutely helping your business by taking that course.

If you were to take that course simply because you wanted to and there is no foreseeable business applications or benefits that are useful to you, then don’t deduct it. Plain and simple.

 

Travel

This is a popular area of discussion when it comes to tax deductions. I constantly get questions about travel and whether or not it is a valid business expense. The question I always ask is:

Is the expense used for business? Kelowna accountant

If you’re going on a business trip and you extend it to have some time for pleasure then there is still a deductible portion of the trip. It might be the travel and hotel for one night but if you are there for 5 nights and your conference or meeting is only one day, don’t deduct 5 days worth of hotel expenses. That’s not reasonable.

Being reasonable might take into account that you needed to arrive the night before and stay the night after the conference or meeting so two nights of hotels is reasonable. The other 3 nights should be paid for personally or else you’re treading in waters that get people into trouble.

Many people groan when I tell them this but I would not be a good Kelowna accountant or business advisor if I were advising you to do unethical things that can get you in trouble.  They will cost you significantly more money once those expenses are audited by the CRA!

 

Every Business Is Different (And So Are Their Expenses)

I don’t like to generalize and say that XYZ expense is indeed a business expense because it may not always be. It’s imperative that you look at what you’re Kelowna accountantspending money on and if it is a business expense, save the records and review them with your tax advisor or accountant.

Clients ask me if I have a list of things they are allowed to deduct and I don’t have one because I don’t know what your business spends its money on.

A general rule of thumb is to simply be reasonable with your deductions and firmly distinguish your personal expenses from those that are truly business expenses. If it looks and feels like a business expense, it just might be a business expense!

When in doubt, consult your tax advisor or local Kelowna accountant so you can get professional advice from someone who understands the Tax Act and your business. You don’t want to take risks when it comes to taxes!

Related: 3 Bad Decisions Entrepreneurs Make During A Recession

 

 

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