What You Can and Cannot Deduct as a Small Business

To own a small business in Kelowna is an entrepreneur’s dream.  Work hard and when the day is done, enjoy this beautiful four season playground. The area is made up of numerous small businesses with a variety of things to offer. Whether your business is established or just getting started, Kelowna accountants follow rules when it comes to your small business deductions and you should know these rules as well.

Personal taxes overwhelm most of our clients but filing as a Kelowna small business, sifting through receipts and paperwork, can be much more complicated.  Though you should utilize the services of Kelowna accountants and tax professionals to be safe,  it is always good to have a basic knowledge of your own.

Kelowna Accountants give advice on small business deductions

Here are some basic tax tips on deductions for small businesses:

 

Travel Costs

The Okanagan is a big place and travel may be necessary when you own a small business centrally located in Kelowna.  Many expenses due to travel are completely deductible.  Some, are not!

Airfare, hotels, car rentals, mileage, and other miscellaneous expenses such as laundry costs can be written off.  But you would likely have to eat whether you were traveling or not, so the government only allows up to 50% deductions on food.  Here’s what you need to know about traveling expenses

  • Client meals are 50% deductible.  Write on the receipt who the client was and the reason for the meeting.
  • You can take your family along on business trips however only the costs directly associated with you and your business will count towards the deductible expenses.
  • Conference fees will qualify if the conference was related to your business and provided education to grow and run your company.  Comic book conventions, concerts, and any other entertainment type of event will not qualify.
  • Disneyland, the Eiffel Tower, or other tourist attractions are not deductible.  You are certainly allowed to mix business with pleasure but when it comes to business deductions, these expenses have to be kept separated.

 

Home Offices

Many small Kelowna business owners are confused about “home office” deductions and fear that if they start claiming these expenses, an auditor will find them. This should never keep you from claiming legitimate deductions. Keep well-organized records that prove your deductions are business related and you’ll be fine.  When in doubt, ask a Kelowna accountant who is experienced in dealing with small businesses and follow these suggestions:

  • The office area needs to be separate from the rest of the house.  Whether it’s a room on its own or part of a larger living area, there should be a clear line between your work space and the rest of the home.  Dual usage such as a spare room or play room for the kids will not be acceptable. Kelowna Accountants Home Office Deductible
  • Claiming a computer won’t be difficult if you only use that computer for work.  If there is only one computer in the house, an auditor will have a hard time believing that it is not used for personal reasons as well.  Either dedicate a computer solely for work or omit the computer area from the office space you wish to use as a deduction.
  • It’s easy to figure out the percentage of home expenses that is deductible.  Measure the office space and divide by the total square footage of your home.  Use that percentage for rent or mortgage, taxes, maintenance, and utilities.

 

Software & Equipment Purchases

New Kelowna businesses are starting every day so you’ll need to be up-to-date on software and equipment. A vehicle with the company logo can be great advertisement.  Computers, printers, and vehicles used for the business are all tax-deductible.  But only to a certain amount. You may be able to deduct the full cost in the year of purchase or split it over numerous years.  This is an area where an accountant can help.

Any vehicle used for the business cannot be used as the family car. Again, if you only have one car for the entire household, an auditor may not see that as a deduction.

Businesses are encouraged to stay informed and educated about their industries.  If you require subscriptions to websites or magazines, those are also fully deductible.

Kelowna accountants will agree it’s critical with finances, especially taxes, to keep your receipts and reasons for every purchase. It may seem overwhelming at first but it gets easier once you get into the habit.  Do your research and if you don’t have the time or knowledge to handle all of this yourself, contact us.  The more organized your finances are, the more you can focus on making your Kelowna small business successful.

For more tips and advice, please contact us at Kerr & Company, your local Kelowna accountants.  We provide accounting, tax planning, bookkeeping, and business advisory services to a variety of businesses in the Kelowna and Vancouver area.

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