The first installment of this series, Maximize Your Business Income Tax Deductions, discusses keeping track of your business expenses throughout the year, tax deductions related to the cost of doing business, and home business deductions. This article covers:
- Automobile Expenses
- Travel Expenses
- Employing your Spouse or Child
- Advertising and other Expenses
Once you've read through both of these tax articles, you'll have a complete list of business expenses that you can check before handing your receipts and documents over to your accountant or use to complete your own income tax form - focusing, of course, on maximizing your business income tax deductions. First, let's take a look at deductions related to vehicles.
If you use a vehicle in the course of your business, have you deducted all of your business expenses related to your automobile(s)?
The cost of fuel, motor oil, and lubricants used in your business are allowable deductions. (This includes gasoline!) You can also claim the license and registration fees, insurance, and the cost of vehicle maintenance and repair. If you've borrowed the money to buy a vehicle, you can claim the interest on your loan as a business expense. If you've leased a vehicle, you can claim the leasing cost.
The catch with vehicle deductions is to be sure you distinguish between business and personal use. If you have a vehicle that you use for both business and pleasure, you can only claim the portion of automobile expenses related to business use as a business tax deduction. The Motor Vehicle Expenses section of the CRA's Business and Professional Income Guide gives a good example of how to calculate the deductible portion of your vehicle expenses (CRA Forms and Publications).
This section of the Business and Professional Income guide also explains the three classes of vehicles for income tax purposes. The CRA distinguishes between motor vehicles, automobiles, and passenger vehicles, and the class of vehicle you have can affect your allowable deductions.
For instance, if you borrowed the money to buy a passenger vehicle which you use to earn income, the amount of interest you can deduct is limited, as is the amount of leasing costs you can deduct. The Guide also gives an example of how to calculate the amount of deductible interest on money you've borrowed to buy a passenger vehicle you've used for business purposes.
If you've used more than one vehicle to earn income over the past year, it's important that you keep separate records for each vehicle, and calculate your expenses accordingly.
Now what about those income tax deductions relating to travel? Continue on to page 2.
