That’s Michelle Chand, our cool new intern, and a messy bookkeeping project on her lap we call The Big Blue. But all you see is your face, stuck amid a pile of receipts you are not even sure you can claim as a business expense and a mean clock ticking down to tax time? We can help!
So, you just got a styling hairdo at your favourite salon and a fancy Aritzia number to go with it. But can you claim your new look come tax season?
Every year around this time, clients come in, confused about what they can and can’t claim.
So, we decided to bust common tax myths:
Home office Tax Myths:
Your Dog is not a security expense – You laugh but this is a legit thing people try to claim! We repeat if you have a home office you cannot claim any expenses related to your dog as a security expense. That means vet bills, dog food and hours spent loving your dog are not under any circumstances tax deductible.
Home office deductions are based on the percentage of your home that you use to conduct business NOT the size of your home. You need to calculate: square footage of business area and divide that by the square footage of your home. Storage space for business supplies and/or tools also can be included in your calculations as an area used for business.
Clothing Tax Myths:
GENERAL CLOTHING CANNOT BE WRITTEN OFF UNDER ANY CIRCUMSTANCES. The only benefit you are going to get from purchasing some new work threads is the satisfaction of looking really good. The only exception to the rule is safety clothing such as hard hats or steel toe boots and company branded clothing that is considered a uniform.
Dry Cleaning is only deductible if you are having a company uniform cleaned. That beautiful Armani Jacket you own unfortunately needs to be cleaned at your own expense.
Food Tax Myths:
A legitimate meal expense is one where you are going out with a colleague or potential client to discuss business. Going for a solo lunch while working doesn’t count for a meal. You should also record the name and number of the client you are meeting with on the meal receipt.
NOTE: In an audit of one of our clients, the auditor asked to see each meal receipts with the name and phone number of the person who was present at the meal AND a description of the type of business that was discussed.
Vehicle Tax Myths:
Just because your vehicle is branded doesn’t mean that you write off 100 percent of vehicle expenses. Auto expenses are calculated based on the percentage of the year’s total km’s that are driven for business purposes. That said the expense of having your car branded is 100 percent deductible as an advertising expense.
Client Gift Tax Myths
If you purchase liquor or any type of gift certificate from a restaurant, for example, a Starbucks or Whole Foods gift certificate, as a client gift, this is considered a MEALS expense (so only 50 percent is deductible) NOT an advertising expense (100% deductible). In order to deduct client gifts at 100 percent you need to buy gifts that aren’t food such as spa packages, flowers, Home Depot gift certificates etc.. Additionally you need to make sure you note which client received what gift in case you are audited.
Employee Tax Myths:
If you receive a T4 from your employer, you are not eligible to deduct ANYTHING unless your employer fills out a T2200 form authorizing you to do so. That said any dues or insurance you purchase from professional organizations can be deducted so long as you have been designated as a professional.
Student Tax Myths:
Unfortunately, as a student, you are not allowed to deduct any additional expenses beyond what your tuition slip from your educational institution (T2202) indicates. Therefore items such as your computer and stationery supplies are non-deductible.
When filing your taxes it is important to keep in mind that from the CRA’s perspective anything that could be deemed as personal, WILL be deemed as personal in the event of an audit.
Although you can take the risk and claim the above expenses you really should not, because in the event that you are audited and your claims are denied you will be forced to pay a fine in addition to paying back all of the tax you avoided along with interest.
We are taking appointments for tax consultations now so if you want to get ahead of the rest and book your ideal time contact us now.