Business Expenses You Can Deduct

Most of the business owners always get confused with the types of expenses that can be claimed to minimize corporate tax. Versatile Accounting has put together the list of the expenses that can be deducted for tax purposes:

Meal Expenses

The maximum amount you can claim for food, beverages, and entertainment expenses is 50% of the lesser of the following amounts:

  • the amount you incurred for the expenses
  • an amount that is reasonable in the circumstances

These limits also apply to the cost of your meals when you travel or go to a convention, conference, or similar event.

These limits do not apply if any of the following apply:

  • You incur meal and entertainment expenses for an office party or similar event, and you invite all your employees from a particular location. The limit is six such events per year.
  • You incur meal and entertainment expenses for a fund-raising event that was mainly for the benefit of a registered charity.

Home Office

You can deduct expenses for the business use of a work space in your home, as long as you meet one of the following conditions:

  • it is your principal place of business
  • you use the space only to earn your business income, and you use it on a regular and ongoing basis to meet your clients, customers, or patients

You can deduct part of your maintenance costs such as heat, home insurance, electricity, and cleaning materials. You can also deduct a portion of your property taxes, mortgage interest, and capital cost allowance (depreciation). To calculate the part you can deduct, use a reasonable basis such as the area of the work space divided by the total area of your home.

Business tax, fees, licenses, and dues

You can deduct any annual licence fees and business taxes you incur to run your business. 

You can also deduct annual dues or fees to keep your membership in a trade or commercial association.

You cannot deduct club membership dues (including initiation fees) if the primary purpose of the club is dining, recreation, or sporting activities.

Interest charges

You can deduct interest incurred on money borrowed for business purposes or to acquire property for business purposes. However, there are limits on:

  • the interest you can deduct on money you borrow to buy a passenger vehicle.
  • the amount of interest you can deduct for vacant land

Usually, you can only deduct interest up to the amount of income from the land that remains after you deduct all other expenses. You cannot use any remaining amounts of interest to create or increase a loss, and you cannot deduct them from other sources of income.

Fees deductible over five years

You can deduct certain fees you incur when you get a loan to buy or improve your business property. These fees include:

  • application, appraisal, processing, and insurance fees
  • loan guarantee fees
  • loan brokerage and finder’s fees
  • legal fees related to financing

You deduct these fees over a period of five years, regardless of the term of your loan. Deduct 20% in the current year and 20% in each of the next four years. The 20% limit is reduced proportionally for fiscal periods of less than 12 months.

However, if you repay the loan before the end of the five years, you can deduct the remaining financing fees then. The number of years for which you can deduct these fees is not related to the term of your loan.

Salaries

Any salary you pay to yourself or any of your employees is a 100% tax-deductible expense. However, it is the responsibility of the employer to deduct CPP and EI for all workers and remit to CRA. If there are some uncertainties that you need to clarify, it is always wise to consult your qualified accountant.

Summary

What we’ve covered here is a small number of possible deductions you could make on your taxes. If you have questions or have doubts about items you wish to deduct, contact Versatile Accounting today.

Questions To Ask When Selecting an Accounting Firm

Most businesses only seek accounting services when it’s time to file their taxes. A proper accounting firm can be an expert advisor in running your business and tax planning you need. For them to effectively fit this role, you have to pick the right one. Here are the questions to ask while assessing an accounting partner.

1. What services do you provide? 
Most accounting firms in Calgary offer an array of services, from payroll and bookkeeping to taxes and audits. A Calgary CPA has a broader scope than an accountant. Find out what the firm can do beyond compliance. Also, find out if there are any conflicts of interest such as representing your competitors, former business partners and so on.

2. Can you represent me if I get audited by the Canada Revenue Authority (CRA)? 
While a Calgary CPA can represent you with the CRA, not all accountants qualify for this service. A CRA audit can be a tedious and overwhelming process. If you find yourself going through one, your safest bet would be to have a professional that knows the ins and out of the process. Find out what your representative knows about it, how many cases they have handled and the circumstances and outcome of their cases.

3. Do You Have Experience With My Kind Of Business? 
Find out how many clients in your industry your prospective Calgary accounting firm has handled before or at current. Also, discuss the size of your business and if the accounting firm can sufficiently handle it.

Most firms have several professionals, with different specializations and portfolios which increases your possibility of landing a perfect fit for your industry and business size. You can check this on the accounting firm’s website, and book an appointment with them, and let this be your starting point.

4. Do You Communicate By Email or other Online Means? 
Accounting firms have different personalities. Some Calgary accountants are conventional while others are modern which reflects in their preferred communication styles. Modern firms will use video conference, Skype, email and other technologies that support collaborative communication. On the other hand, conventional firms might not be so open to these channels. 

Your business style and culture should inform which form of communication you prefer. If you are a young workforce that thrives on instant responses, then newer channels will be best suited for your business.

Whichever the preferred mode of communication is, find out what the expected response times are. You would not want to be in distress,and your accounting firm is taking hours to get back to you. Conversely, ensure that your firm has robust data protection systems to protect yourself and your company data.

5. How Often Should We Meet To Discuss my Business Taxes? 
The tax return deadline in Canada is not fixed. Your corporate filing deadlines are dependent on the fiscal year as well as your business framework. With this is in mind your CPA in Calgary should be able to set up appointments around these dates to facilitate the process.

This is not all; a good benchmark would be quarterly meetings that allow both parties to find and fix any pain points. It’s also good to have one contact person in the firm, and not be tossed around from one specialist to the other. It’s easier to create a trusting relationship in this way.

6. What Are Your Fees? 
For most Calgary accountants, the standard plans are:

  • Time-based fee: Simply put, these are hourly rates and these rates are dependent on the seniority of your assigned specialist. While as a business owner you have the advantage of paying for several hours a month weekly or monthly, the accounting firm is in centralized to maximize the billable hours.
  • Project-based fees: This is billed based on the entire completion of a project.
  • Value-based fees: These are agreed-on weekly/monthly fees. This offers a certain level of certainty to both the accounting firm and yourself as a business owner. For whichever option you use, ensure to get detailed information in case there are any exclusions to the services under the billing plans. 
  • By getting detailed answers to each of these questions, you will be in a position to evaluate them against your business needs so that you can make the right choice. An accounting firm is an essential partner for any business; you, therefore, want to pick the right accountant in Calgary at the get-go. Doing so will allow you to stick with them longer and develop an almost-intuitive working relationship.

Versatile Accounting, a vibrant, caring and detail oriented Calgary accounting firm is ready to Partner with you in helping you with all your bookkeeping, personal and corporate taxes as well all matters related to business planning. Contact us today.

Advantages to Incorporating Your Small Business

Sole proprietor ships or partnerships are usually the entity of choice. They’re inexpensive and easy to maintain. They don’t worry about hiring accounting companies. However, there is one risk factor regarding these entities: liability.

If you own a sole proprietorship or partnership, then we encourage you to read this article, and seriously consider incorporating your business.

Here we present you some advantages to incorporating your small business, offering suggestions where appropriate.

#1: Limited Liability

If your business is incorporated, the responsibility for liability lies with the corporation, which is a separate legal entity and treated as an individual. No one can touch your personal assets, just those of the corporation. Contact your attorney for specifics on this subject or talk to your qualified accountant

#2: Continuance

The lifespan of a corporation is unlimited. It can continue to exist long after you or other shareholders pass away or resign. The corporation can also continue even in the case of change of ownership.

#3: Funding Advantages

Corporations have an advantage that other entities don’t enjoy. It’s called equity financing, where shares in the corporation are offered to individuals and companies that have money to invest.

We want to offer a word of caution here. Be careful not to issue so many shares that you risk giving up too much of your percentage of ownership. Have the necessary advisors on hand to plan before you implement the idea.

#4: Ability to Split Income

As a corporation, there is an opportunity to split income among the family members. However, with new rules in place of “Tax on split income (TOSI),” you will need advice from your qualified accountant so that you are not taxed at higher rate personally or attribution tax rules.

There can be a lot to sort out in terms of details. It can be confusing. So don’t underestimate the value of good tax professional that can help you put the pieces together.

#5:  Tax Deferral

With the Small Business Tax Deduction (SBD), your first $500,000 of taxable income is taxed at a reduced rate. Federal income tax for income qualifying for SBD in 2019 is 9% Thus providing tax deferral advantage if you retain the money in the corporation rather than withdrawing personally. The maximum combined marginal tax rate is 48% (for Alberta Province).

Whenever there are tax concerns, never try to deal with it yourself. You must seek professional advice. Discuss the matter with your qualified accountant to see if your business qualifies for the deduction.

#6: Credibility & Trust

Somehow, being incorporated lends your business an amount of perceived credibility and trust. Some people will only do business with corporations. You may see an increase in business solely on the fact that you have the word “Inc.” or “Corporation” in your business name.

#7: Protected Business Name

Corporations, on the other hand, have business name protection. Once you’ve registered your corporation’s name, it’s yours, and no one can use it. You, however, can use it in any province. Other entities do not get this name protection.

#8: Peace of Mind

Last of all, if you are concerned about liability with your business or want to avoid being sued, and want to protect your assets, then incorporating will give you peace of mind. It could be worth it.

It’s better to talk to your qualified accountant if there are advantages for you to incorporate the business. Book a free consultation with Versatile Accounting to seek advice on the incorporation of your business. Versatile accounting’s qualified accountant can guide you through incorporation process working along with your legal advisor.