In the big scheme of things, all companies need to concentrate on the bottom line. This applies to proprietorships, partnerships and corporations. By “bottom line” we are referring to the net profit or loss on the Earnings Statement or Profit & Loss Statement. Simply put, revenues are the money coming in and expenses are the money going out. Subtract expenses from revenue and you wind up with the bottom line. A positive and healthy bottom line means that the company is doing well. This is what we all strive for. The opposite can also occur.
A large bottom line also means that more taxes will need to be paid. To address this, you want to make sure that you claim all legitimate expenses to keep the bottom line as low as possible. These are the write-offs. The operative word is “legitimate”.
In simplest terms, expenses are the monies paid out to run the business and, presumably, to earn revenue. There are rules set by government that address what is considered to be reasonable and allowable. A lot of it is very straight forward but some of it is not. For many expenses, all of it can be written off or applied. Some things like meals & entertainment as well as travel expenses have conditions attached.
Many business owners and managers use “company” money to pay for personal expenses. Is this allowable? Yes it is – provided that the money is allocated as such and doesn’t make it to the Profit & Loss Statement. Trying to claim personal expenses as company expenses constitutes tax fraud and tax evasion. If caught, this could lead to stiff fines, penalties and interest. Also, this would likely set up the company and/or the owners for continued audits. Not desirable by any means. There are enough legitimate write-offs to keep taxes fair and reasonable.
One additional word on government involvement: they are under no obligation to point out missed expenses that would reduce the tax burden. The onus is on the business owners as well as their bookkeepers and accountants.
So what constitutes allowable write-offs for businesses? Comprehensive lists are available on government websites along with explanations and additional information. Some of the more common ones are:
- Advertising
- Bad debts
- Bank fees and merchant transaction fees
- Bookkeeping (our personal favourite)
- Business use of home expenses
- Capital cost allowance (depreciation expense)
- Delivery, freight and courier expenses
- Fuel costs (excluding personal motor vehicles)
- Insurance
- Interest
- Legal, accounting and other professional fees
- Maintenance and repairs
- Management and administration fees
- Meals & entertainment
- Motor vehicle expenses (personal vehicles)
- Office expenses
- Property taxes
- Rent
- Salaries, wages and benefits
- Supplies
- Telephone, utilities and internet
- Travel
- Others including the cost of goods and/or services sold
This list is by no means complete. Part of what we do is to determine all the expenses that apply to our clients and their companies. By all means connect with us to review your situation and how we can help. Let’s keep your allowable write-offs real and safe.
Until next time…
Tracy