5 Epic Myths About Business Tax Write-Offs
There once was a time when it seemed you could write anything – well, almost anything! – off your income taxes. But these times are long gone. Be honest with yourself, do you really think that the CRA is going to let you write off that third pair of shoes? Or can you actually get away with claiming your pet as a dependent? To help clear up the confusion, here is a list of some common business tax write-offs that everyone needs to know.
Myth #1. Meals and entertainment expenses are 100% deductible
The CRA limits the deductibility of meals and entertainment expenses to client meetings or other business-related events. You cannot deduct anything that is considered personal, including meals with family members. Even if you discuss business over dinner with a client, only 50% of the total cost is deductible.
Myth #2. You can deduct all your clothing expenses
Some industries have a strict dress code and require workers to wear uniforms with special shirts or hats. Police and firefighters are two examples of this. If you work in construction, you may be required to wear steel-toed boots. These items are considered "protective gear" and are tax deductible, just like hard hats, safety goggles, and reflective vests.
But in most cases, if your workplace allows casual attire, the CRA considers clothes to be a personal expense that cannot be written off. This includes even the most basic clothes such as jeans, khakis, button-up shirts, sweaters, and blouses. Even if you spend all day wearing these clothes while working at home or on the road, they're still considered personal expenses.
Myth #3: Your pets are considered dependants
Some people believe that they can write off their cat's teeth cleaning and their dog's day at the spa. But that's not true—the CRA requires all deductions to be directly related to the purpose of your business.
For instance, if you run a dog-walking service, you can claim deductions for food, grooming, and other expenses related to the dogs in your care.
Myth #4. You can write off 100% of your vehicle expenses
If you use your personal vehicle for business, you can deduct related expenses like gasoline, tolls, or parking fees. However, you cannot deduct the vehicle itself or its purchase price. To claim car-related deductions, you will need to keep detailed records of how much time and mileage is spent on business uses versus personal uses.
Myth #5. You can write off personal expenses
Independent contractors cannot deduct personal expenses on their tax returns. For example, you can't claim the cost of paper and pencils you purchase for your children as an office expense. Additionally, you can't claim the cost of computers and office equipment for personal use as an expense for your business.
Fortunately, the CRA has established a process for purchases you make both for business and for personal matters. Using this method, you can write off the percentage of your expenses that you use for business. Imagine you buy a computer you use 80% of the time for work. In this case, you can write off 80% of the cost as a business expense.
The moral of this story? If you're a small business owner, or if you're just starting out your own company and want to learn more about the tax process, it's important to understand how deductions work.
Finally, don't be afraid to ask for help. If you're ever in doubt about anything to do with your business write-offs, talk to a tax professional at C.Campbell Agency. We will be happy to answer your questions.
