Tax Tips For Your Home-Based Business

Running your own business can be incredibly stressful even before tax season. You have a lot of work to keep it running and making money, but keep in mind you’ll also have to keep up with doing your taxes. For your Home-Based Business (HBB), you might not realize that there are a number of ways you can reduce your taxes. Here’s a quick guide on three of the basics.

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Deductions

There are a lot of deductions you can claim on your taxes if you run a business in your home. According to the Canada Revenue Agency, you can claim home-related deductions on your taxes if your primary workspace (where you spend 50% of your work time) is at home. So if you use a specific room or space in your home to do your work, you can claim deductions on things like the following:

  • Home office — furniture (chairs, desk, shelving), renovations, property insurance, and even some of your mortgage or rent
  • Utilities — energy, internet and phone bills if you use them for your business
  • Supplies — paper, printer ink, even computers, laptops, phones, and other tech gear you use for work
  • Food — cost of lunches or other food you eat or serve to customers or clients who visit

What’s great about these deductions is that they are intertwined with your normal living expenses. You would probably already need to spend money on these things just to live in your home, but because you also use them for work you can get some deductions on your taxes for them.

Health Insurance & RRSPs

If you are self-employed in your HBB, you can also deduct your health insurance and RRSPs but they are trickier than the above list. You can only claim the premiums for a private health service plan (PHSP) if you meet certain conditions:

  • Your self-employment income must be more than half of your total annual income, or
  • Your income from non-self-employed sources is less than $10,000
  • Your health insurance cannot be part of your spouse’s insurance plan through their job

Your contributions to private retirement plans such as RRSPs and PRPPs might also be eligible for write-offs. You will have to provide receipts to prove your contributions, but as long as you contribute the minimum amount to your plan you could get a deduction from it.

Carrying Unused Expenses Forward

However, you do not have to claim every HBB-related expense or deduction. In fact, in some cases it could be beneficial if you do not claim it in that year so you can do it in a future tax year. If you realize that you have more in expenses than you have in income, you can choose to not use the expenses related to your home business and carry them forward.

You do not even need to claim them the following year either, because as long as you keep meeting the necessary conditions for being able to claim home business expenses you can carry them forward indefinitely until it is a more convenient time to use them. For example, if you have a tax year where your income was higher than your expenses those deductions will have more value.

For more advice on tax savings or to hire a Tax Specialist or Accountant, contact us today.

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