Some helpful tax write offs

I'm going to take a quick second to talk about a few tax write offs that most people didn't realize. These exact percents are based on my local tax law (ontario, Canada) but are very likely similar and worth looking into in your region.

Home Expenses (self employed, or business home office)

-Morgate or Rent payments 15%-35%
-Utilities - 15% (30% for direct business impact services like internet and electricity)
-House Repairs - 10%
-Property Tax - 30%

Vehical Expenses

-Fuel and oil
-Insurance
-Repairs
-Lease payments (or capital cost allowance if you own it)
-Parking
-Vehical registration
-Toll Charges

You are able to write off all the above to the extent at which they were used for business purposes. If the total cost of your vehical was $90,000 that year and 50% of the time it was used for business then you could write off $45,000 - you should keep all reciepts if you plan to do this as vehical expenses are frequently audited.

Business Write Offs (These are all 100% unless listed otherwise)

-Tax and Accounting Preperation
-General Advertising
-Internet
-Lease Payments
-Entertainment and meals (up to 50%)
-Rent
-Wages
-Contractors
-Telephone
-Website fees


Student Write offs If you are a student you can write these off your personal taxes

-Official student residency up to $400 per month
-Student Meal plan
-Text book cost (also apply for the Canadian governments textbook credit [$400 a year in cheques for text book support)]
-Vehical costs if far enough away for permenant address



Remember writing off can give you cash back but never more than you paid out in the first place. Also these values are general and based on my knowledge of taxes in my region, always check with a certified accountant and keep good finacial records.

Nice tips similar in UK. One of the best savings I made when I got an accountant was percentage of rent, tax etc (because I have home office) that I didn't know about before

What, in your opinion, would make the biggest impact in order to reduce the amount you pay in taxes? For example, Is setting up a corporation and paying yourself out of it to total right under a certain tax bracket a smart thing to do?

Also, you listed internet twice, is the internet under "business write offs" only for the internet at your business location, not if you have a home office?

phatzilla said:

What, in your opinion, would make the biggest impact in order to reduce the amount you pay in taxes? For example, Is setting up a corporation and paying yourself out of it to total right under a certain tax bracket a smart thing to do?

Also, you listed internet twice, is the internet under "business write offs" only for the internet at your business location, not if you have a home office?

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It's for Internet used for business so you can only write so much of it off.

Also the best method, which I wrote in another thread is to own a company declare income as profit, take a terrible salary but the rest as 100% profit dividends and then write of all you can

Hey,

Thanks for these pointers. Very helpful. If you don't mind, I got few questions.

I know that domain and hosting expenses can be written off but I would like to know the following.

I made around 5k last month and I am in the process of acquiring a semi-established website for 5k. So, can I write off the entire 5k? In fact, I plan to reinvest almost 85% of my income for the same purpose for the entire year(2012)

Also, how do you deal with the money that you were scammed off. For instance, last time someone scammed for around $800 ( website purchase) Didn't receive anything post the purchase. Can this expense be written off in any ways? thks in advance!

super11 said:

Hey,

Thanks for these pointers. Very helpful. If you don't mind, I got few questions.

I know that domain and hosting expenses can be written off but I would like to know the following.

I made around 5k last month and I am in the process of acquiring a semi-established website for 5k. So, can I write off the entire 5k? In fact, I plan to reinvest almost 85% of my income for the same purpose for the entire year(2012)

Also, how do you deal with the money that you were scammed off. For instance, last time someone scammed for around $800 ( website purchase) Didn't receive anything post the purchase. Can this expense be written off in any ways? thks in advance!

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I'm no accountant but the full five grand can be written off for the business based on business income, as for scammed money no there is no write off for that..

Good post and could be very helpful to alot of people. Couple of things to add: as far as your vehicle, your mileage write off will almost always be worth more to the owner than the cost write off (you have the option to choose one or the other) unless you had to pay for a major accident or repair.
Second: if you are self-employed run as many everyday expenses as you can through your company-im talking about even the smallest of purchases even if they are for personal use.
Last and most important:find a GREAT accountant. Not a good one but a great one. They will save you more than any thing else. A great accountant can be found for the same cost as a by the book good one

Winchester said:

It's for Internet used for business so you can only write so much of it off.

Also the best method, which I wrote in another thread is to own a company declare income as profit, take a terrible salary but the rest as 100% profit dividends and then write of all you can

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Fuck, i wish i knew what that meant. Time to do some reading i guess

Winchester said:

Home Expenses (self employed, or business home office)

-Morgate or Rent payments 15%-35%
-Utilities - 15% (30% for direct business impact services like internet and electricity)
-House Repairs - 10%
-Property Tax - 30%

Vehical Expenses

-Fuel and oil
-Insurance
-Repairs
-Lease payments (or capital cost allowance if you own it)
-Parking
-Vehical registration
-Toll Charges

You are able to write off all the above to the extent at which they were used for business purposes. If the total cost of your vehical was $90,000 that year and 50% of the time it was used for business then you could write off $45,000 - you should keep all reciepts if you plan to do this as vehical expenses are frequently audited.

Student Write offs If you are a student you can write these off your personal taxes

-Official student residency up to $400 per month
-Student Meal plan
-Text book cost (also apply for the Canadian governments textbook credit [$400 a year in cheques for text book support)]
-Vehical costs if far enough away for permenant address


Remember writing off can give you cash back but never more than you paid out in the first place. Also these values are general and based on my knowledge of taxes in my region, always check with a certified accountant and keep good finacial records.

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I have to quote pretty much your whole post, because it really concerns me that most of this seems wildly inaccurate. I worked in BC Canada preparing taxes for several years, and I don't think your really understand how taxes work in Canada. Unless Ontario has some BIZARRE thing which I haven't been made aware of. These type of deductions are mostly federal, and therefore NOT based on your provincial law at all, and rather based on the entire country.

My first concern comes from your "Student Write-Offs".

Where exactly do you plan to "write-off" Residency/Meal Plan/Vehicle costs as a student? What line or form do you plan to put that on? A t2202a is used for calculating Students general deductions and only applies to textbook and tuition costs. It is NOT the exact amount of textbooks, but rather a set amount based on whether you are a full time or part time student, and how many months you attended.

Other common deductions for students are Pubic Transit Passes, and Interest Paid on Student Loans.

I haven't done a T2125 in forever, but your business expenses look fairly accurate, though I believe those are common sense mostly.

Home Expenses for a home office are not limited by the % you have placed there. Not sure where you got those numbers from, but they are simply not correct. This is the correct calculation for how much you can deduct from home expenses:

If you use part of your home for both your business and personal living, calculate how many hours in the day you use the rooms for your business, and then divide that amount by 24 hours. Multiply the result by the business part of your total home expenses. This will give you the household cost you can deduct. If you run the business for only part of the week or year, reduce your claim accordingly.

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You can NOT ever claim part of your mortgage. That would be crazy. You can claim a % of your mortgage INTEREST. The % is equal to the calculation I posted above.

Motor vehicle expenses can be an incredible headache to claim, and if you ever DO get audited, please prepare to pay back anything you have claimed in automobile expenses unless you have absolutely flawless record keeping.

What kind of records do you need to keep? A log book.

Record the odometer reading of each vehicle at the start and end of the fiscal period.

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For each business trip, keep a log listing the following:

date
destination
purpose
number of kilometres you drive.

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Once you get the hang of it, its ok. But if you aren't keeping a log book, and you ever get audited, you are screwed.

I don't know why you say you can deduct $45,000 of the cost for a vehicle, that simply isn't true. You can never deduct the cost of a property like a house or a car as a business expense. You can only claim CCA on it. Maybe there was a miscommunication in what you said there, I don't know.

And finally, you CAN get more cash back then you paid in when you file your taxes because the Canadian Government has a whole goodie bag full of gifts for Low Income Canadians. The main one I am thinking of is the Working Income Tax Benefit, and there is 1 more but I can't think of it now.

So, I don't know if you are doing your taxes yourself, or where you got this info, but I would double check my numbers, or provide some evidence of what you are telling people here. I know you are just trying to help, but just be careful what you post.

Oh, last note, people always recommend using a "certified accountant" for help with preparing their taxes, and that actually doesn't make much sense. To become a "Certified General Accountant", you have to take a test. Personal and Corporate income tax knowledge is the smallest part of that test, and it is equal to a 3rd year course at H&R Block. And half the test is about ethics.

My personal recommendation would be to go to your nearest H&R Block store, and ask for a "Senior Preparer". The reason a senior H&R Block preparer is a better choice is because they will cost a lot less. You can talk with them day and night for weeks, and pay $100-$200 total for even a VERY complicated tax return, compared to $300-$500 for a CGA.

At H&R Block, all they do is Income Taxes, so they don't forget things as easily. A CGA has soooo much other stuff on their plate, as I said, Income Taxes is the smallest part of their knowledge test. Senior Prepares have been through MANY audits, and they know how to win them. Many of them have friends inside the CRA/IRS who can give them hints on how to avoid an audit for that year. If you ever do get audited, you pay NOTHING extra for H&R block to handle it all for you.

Hope I helped some people. Please be careful doing your own income taxes. It can get messy real quick.

so basically, if you own a small business, and have spent, say 1000$ on advertising during this year, you get all that money back?
Sorry if this is a dumb question but I am not familiar with the taxation system in the US

gonigkum said:

so basically, if you own a small business, and have spent, say 1000$ on advertising during this year, you get all that money back?
Sorry if this is a dumb question but I am not familiar with the taxation system in the US

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No sorry. The way it works is like this:

I make $10,000 gross income for the year.
I must now pay the Government $1,000 for taxes (10%).

BUT I own a business, and I spent $1,000 on advertising.
Now I "deduct" the $1,000 from my earnings.
Now my net income is $9,000.
I must now only pay the government $900 for taxes (10%).

Hope that clarify!

Kickflip, thanks alot for that great post, i have a few questions.


1.) is there a specific service package we have to order @ H&R block that'll end up costing 100 - 200?, im not familiar with their billing systems or anything.


2.) Let's say, for examples, proxies cost you 200$ a month, is that deductible under any category?

3.) For renters, i was under the imprsesion that the % of total square footage that your office occupies is tax deductible, is this true? So if your home office takes up 25% of your apartment, 25% of your rent is tax deductable?

phatzilla said:

Kickflip, thanks alot for that great post, i have a few questions.


1.) is there a specific service package we have to order @ H&R block that'll end up costing 100 - 200?, im not familiar with their billing systems or anything.


2.) Let's say, for examples, proxies cost you 200$ a month, is that deductible under any category?

3.) For renters, i was under the imprsesion that the % of total square footage that your office occupies is tax deductible, is this true? So if your home office takes up 25% of your apartment, 25% of your rent is tax deductable?

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Yes, Proxies would be claimable as a business expense because they are 100% necessary to earn your income and serve no personal use outside of your income earning. It would be claimed on form T2125 in Canada, its a general business expense form, you just file it as "other" and you NEED a receipt or invoice which shows "paid" from the company. You can't just show your Paypal email/account. It has to be an invoice or receipt from the company (email is fine, just print it for your records).

With H&R Block, they charge you "Per Form". But the best part of H&R Block, is you don't owe them a single penny until you say "OK, Lets do this, I am ready to file my taxes with you" and that is AFTER they told you the full amount. So you can go in, tell them "its my first time, I think I have a pretty complicated return so I need a Senior Agent" and they will put you with a very experienced person. They will look over all your papers and give you an estimate. If it sounds ok, you can continue. If its crazy, you tell them, "it sounds a little expensive, is there any discount? I just dont think I can afford that much."

Even IF you say OK after the estimate, and they prepare all your taxes etc, you do NOT owe them anything until they are 100% sent off. They will tell you how much balance is owed or refund due etc before they file. Just tell them off the bat, I can afford around $200 max and they will work with you. Most manager has discretion to offer discounts.

I used to discount EVERYONE who was poor 10% to 20% because I was a manager.

Every return will be different with them. I say just walk in, tell them you are interested in speaking with someone about your return, and go from there. NO OBLIGATION. I promise, I worked there for years. I was a tax preparer, a manager and secretary. I had MANY people walk out because it was too expensive, and it is FINE. We don't judge you. Some returns just end up being $100 more because of 1 stupid paper.

For renters, yes that is another way to do the calculation for deductions. That is how I was trained to do it. Take the sq/ft of the office, and divide by total amount. You can deduct that much for "office rent". You can also deduct same % amount for gas/electricity/heat/general repairs etc.

Thanks for the reply. What if i need general tax advice? like someone to talk to and tell them the details of the business and all that, and to get advice for everything i can do in terms of deductions and tax preparation. I honestly dont know jack about taxes point blank.

phatzilla said:

Thanks for the reply. What if i need general tax advice? like someone to talk to and tell them the details of the business and all that, and to get advice for everything i can do in terms of deductions and tax preparation. I honestly dont know jack about taxes point blank.

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During the "off season" the times when its not CRAZY tax time, you can usually schedule an appointment for some free tax advice (but they might freelance for cash if you suggest it, even though its against company rules). If you never plan on filing with them, they won't want to spend too much time with you. If you are paying lots in taxes, you might want to put an ad on Craigslist and see if someone wants to do cheap consulting for like $15/hour.

A lot of retired tax preparers with 10-20 years experience need extra cash and will help you out. H&R Block doesn't really do just "advice". But they DO look at previous years returns and file adjustments to get you extra cash back.

Well at least in the US you deduct your mortgage or rent based on the % of the square footage that you use.

One key thing to remember is that at least in the US, if you do not have a legit business, you can not take any business deductions at all. So you will be paying taxes on the money that you spent.

I personally went with a C corp and many will say you get double taxation... That only happens if you pay out dividends. You need to be smart about it. Well if I have 2 vehicles, one personal POS and one nice one, the company owns and pays for the nice one. Company invests in land etc. Guess who the renter is? The other way you could do this is a vehicle allowance. For internet and phone lines, the company can pay you a technology allowance because you have to have them to work or the company can install and pay for them. Can't do many of these things if you are a LLC or Sole Proprietor.

This is why I keep telling people to read and learn about the different types of businesses.

TNphoneman said:

Well at least in the US you deduct your mortgage or rent based on the % of the square footage that you use.

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Man, I am not an expert in US tax law, but I just don't see how the government would make enough money allowing registered businesses to claim part of the mortgage as a tax deduction. Do you have any link to a site that confirms this? Do you know which form to claim this on?

Rent is different then mortgage, because Rent has taxes paid on it by the Home Owner. Rent doesn't give you anything that you can sell at a later time. The idea is that, you have a higher rent because you needed to rent a bigger home with an office to run your businesses.

I just don't believe the IRS actually allows mortgage payments as a tax deduction.

Kickflip said:

No sorry. The way it works is like this:

I make $10,000 gross income for the year.
I must now pay the Government $1,000 for taxes (10%).

BUT I own a business, and I spent $1,000 on advertising.
Now I "deduct" the $1,000 from my earnings.
Now my net income is $9,000.
I must now only pay the government $900 for taxes (10%).

Hope that clarify!

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its very clear now. Thanks a lot!