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Maximize Your Business Income Tax Deductions

Part 1: Tax Deductions and Business Expenses

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If you're like most sole proprietors, December 31st was your fiscal year end, and you're already sorting through your receipts, and making your preliminary income tax calculations for this year. But are you maximizing your small business tax deductions? This article covers:

The follow-up article to this one, More Ways to Maximize Your Business Income Tax Deductions, covers:

The first rule for maximizing your deductions is to have all your business-related receipts. The CRA (Canada Revenue Agency) insists that all of your business expenses need to be backed up with receipts, so you have to collect them (and keep them for six years, as the CRA may want to look at them sometime).

Keeping track of all of these receipts throughout the year is the most difficult part of preparing to do your income taxes, in my opinion. Training yourself to always ask for a receipt, no matter how small the purchase will get the process off to the right start.

You should also train yourself to look at your receipts when you first collect them, and make sure the receipts show what they're for, as well as having a legible vendor's name and date. Illegible or incomplete receipts are a nightmare when it comes to inputting the receipt data into whatever record-keeping system you're using for accounting purposes - especially if you or your bookkeeper are trying to figure out what an incomplete receipt was for and record it months after the fact.

Getting into the habit of looking at your receipts as you collect them and making sure they contain all the required information in a legible fashion is a vital first step in maximizing your business income tax deductions.(For more information about gathering your receipts and getting them organized, see Four Tips for Handling Receipts and A Filing System for Receipts.)

Having (ahem) all my required receipts and tax-related documents in some semblance of order, here's my list of business expenses that I'm checking twice to get ready for income tax time. Depending on your habits this past year, some of this advice may fall into the category of resolutions to follow this year so you can reap the benefit on future income tax returns.

But first, there's this tax year to get through. Let's look at how to apply some specific small business tax deductions to your income tax, starting with the cost of doing business. Continue on to page 2...

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