10 Common Small Business Tax Deductions

Jun 20, 2019 | CPA

Small business expenses that qualify as tax deductions

Many small business expenses qualify as tax deductions -- in fact, more than you might think -- but certain rules apply to many of them. Learn what you can and can't do before you begin subtracting from your tax obligation.

  • Many small business deductions have limits or restrictions. For example, entertainment deductions are  often limited to 50 percent of each expense. 

  • Create a paper or electronic trail  for each deduction you claim. Include the date of the expense, the exact amount and the purpose it served your business in case you have to  explain the deduction to the Internal Revenue Service. This can be as easy as saving receipts, bank statements and credit card statements and making notations on them to remind yourself why the expenses were       incurred. 

  • Keep business and personal expenses  separate. Don't pay personal bills from your business account, and definitely, don't include personal expenses as business expenses on your business tax return. 

Now that you have the basics down, here are some examples of what you can deduct. 

1. Expenses for Accounting, Bookkeeping, Taxes

You may decide to hire and pay someone to take care of your bookkeeping and accounting, or to prepare tax returns and offer tax advice. These professional services are deductible business expenses.

2. Advertising and Marketing Expenses

Whether you call it advertising, marketing or promotion, you can deduct expenses that help you bring in new customers and keep existing clientele. 

3. Reference Materials, Computer Hardware and Software

You can deduct the costs of purchasing necessary reference materials. Make sure your computer use is 100% dedicated to your business before you take a full deduction, and check with an accountant. Even computer or other equipment are consider as capital, you can still claim Capital Cost Allowances (CCA) annually, CRA provides a list of CCA deduction rate for each kind of capital purchase.

4.Use of Your Automobile for Business Purposes

You can deduct expenses related to business use of your vehicle using the CRA standard mileage rate or by deducting actual expenses. The standard mileage rate is adjusted periodically and not always upward, so check for the most recent figure. The mileage over the last few years is about .54 per km. Run the numbers both ways to see which is most advantageous to you, keeping in mind that you can't use deduct expenses for commuting back and forth to your business location.

5.Insurance Expenses

If you have purchased insurance for your business, for your business equipment, or health insurance for yourself and employees, you can deduct these expenses for business tax purposes.

6.Interest on Business Debts

If you have purchased a building or you have a business loan, you probably have interest expenses. These are tax deductible.

7.Legal and Professional Fees

In addition to the fees you paid your CPA or accountant, you can also deduct expenses for attorneys, appraisers and other business advisors.

8.Business Travel and Entertainment Expenses

Expenses for business travel, meals and entertainment are deductible. They're usually subject to the 50-percent rule and you must prove they were incurred for business purposes. Business gifts to clients may be fully deductible.  

9.Office Supplies and Materials

Every business needs office supplies and materials. These expenses are also deductible for business tax purposes.

10.Tax Expenses

Many local and provincial taxes are deductible on your federal return. For example, if you have a business vehicle, the license registration is deductible.