Tax Credits for the Self-employed

Author: Heidi Ibrahim | | Categories: accounting and tax services , accounting services , bookkeeping services , chartered accountant , e file , hst preparation , small business accountant , tax accountant , tax filing , tax preparation , tax return

Self-employment leads to so many advantages, so many expenses you can claim against your earnings, as long as those expenses contributed to your business. Some of these are the following:

  • Home office
    The CRA requires only that you use a "reasonable" way to calculate how much of your house is used as an office. Based on the percentage of your office space compared to the whole space of your house, you can claim a percent of your rent, utilities, mortgage interest, property taxes and home insurance.
  • Business use of a car
    You can claim the business use of your personal vehicle for credit against self-employed earnings. The best way to show the CRA you're on top of it is to keep a log book documenting your kilometers driven for personal and business purposes. When you determine the percentage of distance you drove your car for business use, you can claim that percentage of the car's expenses for the year. Auto expenses that reduce your taxes include: fuel, repairs and maintenance, auto insurance, vehicle license and registration fees, the capital cost allowance, interest paid on a car loan and lease expenses. The CRA considers driving to and from work to be personal use.
  • Capital cost allowance
    Major purchases of equipment, a vehicle or a building are considered a capital expense. Capital expenses have the purchase value spread over the life of the item. The Income Tax Act sets out many capital cost allowance classes showing how to allocate the cost of a capital item each year, until its useful life is over. Each class has a percentage by which items lose value each year. This value becomes an expense credited against your self-employed earnings, reducing the amount on which you pay taxes.
  • Other business expenses
    There are some expenses that you can only claim a portion, things such as meals, entertainment and advertising in certain Canadian magazines. Other types of allowed operating expenses include:
    Accounting and legal fees;
    Business taxes, licenses, association fees or dues;
    Insurance premiums, bank fees and loan interest up to allowed limits;
    Repairs and maintenance to buildings and equipment; and
    Office expenses, such as supplies and telephone service.

BACK