You may be aware of the common expenses your business can deduct. And you may be familiar with the criteria that are used to determine the eligibility of a business deduction. Yet, you still have specific questions about the different types of expenses. Here we will go over a list of frequently asked questions for business expense tax deduction.
Q: I own a small business and I have one car that I use for both work and personal. How much can I deduct?
A: You need to track the total number of kilometres driven for the fiscal year and calculate the number of kilometres you have driven for business. Record the date, destination and reason for each trip. For instance, if you have driven a total of 20,000 kilometres in the fiscal year and 5,000 kilometres relate to business, you can claim a 25% deduction for the use of your car.
Q: I have a cell phone that I use for work and home. How do I claim that as an expense?
A: You can only deduct the portion that relates to business usage. You can prorate the airtime and data usage for your business.
Q: I use the internet for work. Can I claim it as an expense?
A: It can be claimed 100% at your principal place of business. However, if it’s a home office, only the portion that relates to business usage can be claimed. You have to determine the time that you use the internet for your business.
Q: I bought business equipment and laptops for my staff. How do I deduct them?
A: You cannot claim the full amount in the year of purchase, because these are considered capital purchases. You must depreciate them over a number of years. For instance, if you buy laptops for employees, deduct this equipment yearly over its lifetime through tax depreciation.
Q: I need to buy appropriate business attire to meet my clients. Can I deduct these clothing purchases as an expense?
A: You cannot deduct the clothing that you wear for work unless it’s a distinctive uniform (e.g. with company logo on it) or safety clothing (e.g. safety boots and goggles). Civilian clothing such as a pair of jeans or suits are considered personal expenses and are not deductible.
Q: I got a parking ticket after a meeting with a client who ran late. Can I deduct it?
A: Penalties and fines such as a parking ticket cannot be claimed as a business expense.
Q: I operate a cleaning service company and I purchase cleaning supplies for my business. What can I deduct?
A: You can claim the cost of your cleaning supplies for your business. If you operate your business at home, you can make these deductions if they are related to your work space.
Q: I have an office at my business and at my home. Can I claim both as an expense?
A: Generally when a person has more than one office, only the main office can be claimed as a business expense tax deduction.
Q: I file my business tax return electronically. Do I need to keep my receipts?
A: You are required by law to keep your receipts for six years after filing the tax return because they will be needed in the event of an audit.