Understanding Business Expenses
There are plenty of straightforward business expenses, but not all of them are crystal clear. As we approach the end of the year, many of our clients come to us with specific questions about what they can (and should) write off.
Claiming business expenses can lower your overall tax burden, so it’s essential to claim whatever you can. However, there are limitations on certain expenses, and it’s equally as important not to cross any lines drawn by the Canada Revenue Agency so you can avoid audits and inquiries.
Before we get into the specifics of the much-debated “meals and entertainment” category, let’s take a closer look at business write-offs and how they work.
Business Write-Offs
What Are They?
Write-offs allow owners the ability to deduct expenses that are central to their business. This means that taxable income towards your business is reduced by the total amount of the expenses you claim. Anything that is considered an expense to a business is deductible.
For example, let’s say you decide to take a business trip that costs you $5,000 dollars. Your business generates $100,000 dollars in revenue. The cost of that trip is deductible from the $100,00 dollars of profit your business earns, in which case you will only be taxed on $95,000. In summary, any reasonable expense added to your business revenue stream is deductible or eligible as a write-off.
What Can Be Written Off?
There are a number of expenses that are eligible to be written off towards your annual business income. The most important thing to understand when it comes to write-offs are the legalities associated with business write-offs. There are certain liabilities that the CRA could look into if deductions are made that aren’t allowed.
If you have an accountant or bookkeeper in Edmonton, you can get in touch to ask specific questions about your expenses.
Meals & Entertainment Expenses
Planning an event to gain a little team spirit and bonding with your employees? A company lunch? A trip to the next hockey game with a client? Whatever the case may be, these types of events are greenlit as deductible business expenses.
However, unlike many other business expenses, such as office supplies or equipment, the meals and entertainment category only allows for 50% of the entire expense to be deducted. This can cover charges for items such as tickets for sporting events, private boxes and seats at sports arenas or stadiums, ticket costs for plays, concerts and performances, and the food consumed.
It’s important to note that taxes and tips are included in the 50% deduction, so you can claim the full amount of the bill for any events or meals.
Exceptions to the 50% Rule
Although most typical meals and entertainment expenses are only 50% deductible, there are cases where you may be able to claim 100%. These instances include:
- When you will bill your client or another for 100% of the expense
- When you host an event for all employees, such as a Christmas party (for no more than six events per year)
- When the expense is part of a fundraising event for a charity
- When meals are included as taxable benefits for employees
- When meals are provided by the employer for employees working at a site (such as at a remote camp)
Get the Right Advice
If you need support when claiming your business expenses, reach out to Schwan & Associates for personalized support. We provide tax filing, bookkeeping, and accounting services in Edmonton. We can help you lower your tax burden by guiding you through your potential deductibles. Call us today for a free consultation.
