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Home TAX TIPS Our Tips Deductions from self-employment income

Deductions from self-employment income

As we have just lived through one deadline of April 30 for all individual taxpayers, we are now facing another one of June 15 for all self-employed. If you are a sole proprietor or a professional working independently, you and your spouse enjoy extended tax filing deadline of mid-June. However, according to some very advanced logic, if you have a tax payable you still need to pay it by April 30, even though you may file by June 15. This means that you will not be charged penalty for non-filing until June 15, but the interest will accumulate on outstanding balance from April 30.

If you do enjoy status of a self-employed, independent contractor, or freelancer we hope you will find the following list useful. It is put together to remind you of all potential deductions you can claim from your business income. The more legitimate expenses you can gather the better your tax bill will look. It is definitely worthwhile to sift through your papers to find those precious receipts.

 

  • Amortization of capital assets (computers, equipment, furniture, leasehold improvements) and intangible assets (patents, rights, goodwill)
  • Bad debts (when included in income in prior years) and collection expenses related to bad debts
  • Business taxes, fees and dues including business-related memberships and subscriptions
  • Convention expenses – limited to two per year, including international conventions if organized by a non-Canadian organization
  • Courses taken to improve business or trade skills, however, university or college programs can only be claimed as tuition credits and not direct business expense
  • Delivery, freight, shipping and storage
  • Direct costs such as materials, supplies, salaries and subcontractors’ costs
  • Facility costs - taxes or lease on business property, utilities, maintenance and repairs
  • Home-office expenses including utilities, property tax, insurance, mortgage interest, maintenance or rent claimed as percentage of space used for an office
  • Insurance - including fire, theft, liability, WSIB
  • Interest on business related loans and bank charges
  • Meals and entertainment expenses when entertaining clients or potential clients (limited to a 50% deduction)
  • Motor-vehicle expenses - such as fuel, insurance, repairs, licence, financing cost, lease payments claimed as proportion of kilometres driven for business to total kilometres driven in a year
  • Professional fees – including accounting fees paid for bookkeeping and preparation of your income tax, legal fees, including representation cost to obtain business-related licence, permit, franchise or trademark, consulting fees, management and administration fees, fees related to development of a website
  • Promotion and advertising
  • Start-up costs of new business, including expenses paid before the business was operational
  • Telecommunication and internet expenses.

As a self employed individual you have to use an accrual method of accounting. This means that you should report your income when your work is complete and not when you are paid. By the same token, you report your expenses when you incur them and not when you actually pay for them.

When preparing your papers for the tax filing, it is useful to keep your receipts sorted by category. Generally, you do not need to file your records by month or quarter, unless the nature of your business requires so (for example for HST filing purposes). The most important is to save all those business related receipts to claim your eligible business expenses.

 

Eva Kupiec, CMA

Beata Kurpiewski, CGA

Principals of Professional Accounting Office at 3461 Lakeshore Blvd. W.

www.beaccounting.ca