ECN Forum Forums General Topics of the Trade Business Related Discussion Tax Write-offs

What things do you (or could you) claim as tax write-offs?

The obvious ones are mortgage interest, utilities, property taxes, vehicles, safety clothing, etc.

I know a guy who buys shirts with his logo. He gives some away as promotions and uses the rest, himself.

In Canada, with a corporation, we can self-insure for a few thousand dollars of health care costs.

I have a jacket from my last employer with his logo. The justification was that it represented a 5 year safety award, and he got one, too.

What else is there?

All of your office expenses, phones, PCs, internet access etc.
If you use your house you can also do the home office thing, just be sure you have good records.

I actually got audited one year because I had office expenses and no office. The IRS guy helped be do the home office deal and I got money back.

Thanks to ECN Member A-line, this checklist of write offs for business owners. He first posted it in 2004(?)



Building Rent/Lease
Dispatcher
Property Taxes
Management Training
Office Training
Tangible Taxes
In-House Training
Building Insurance
Tech Training
Mfg. Training
Telephones
Internet Access Charges
Training Equipment
Vehicle Maintenance
Travel
Utilities
Vehicles
Loans
Subscriptions
Inspections
Liability Insurance
Employee Insurance
Truck Racks
Toll Calls
Bonds
Pagers/Cell Phones
Ladders
Trips to Supply House
Safety Equipment
Radios
Licenses
Computer Maint.
Law Suits
Radio Maintenance
Printing
Software
Office Equipment
Vacation Pay
Copy Machine
Forms
Life Insurance
Holiday Pay
Uniforms
Accounting
Business Insurance
Workers Comp.
Trade Association
Wages
Salaries
Advertising
Tax Preparation
Stationary
Theft
Memberships
Fuel
Interest
Marketing
Pay Roll Taxes
Uncollected Money
Unbillable Hours
Commissions
Call Backs
Unemployment
30+ Day Receivables
Safety Training
Bonuses
Shortages
Equipment
Bad Checks
Inventory
Delivery
Christmas Party
Test Equipment
Dues
Replacement Parts
Parts Storage
Damages
Material Purchases
Tool Replacement
Truck Signs
Warehouse Space
Files
Company Tools
Bank Charges
Building Maintenance
Legal
Computers
Trash Removal
Incentives
Postage
Credit Card Sales
Drug Testing
Office Supplies
Uniform Maintenance
Retirement Plan
Retainers
Grounds Maintenance

Let's give the guy a 'handle' for managing things.

Start with IRS form "Schedule C." This is the place you list your business operations for the 1040 tax return. This document is where you will account for your expenses, so NOW is the time to set things up so that the information is available in a manner that you can use.

http://www.irs.gov/pub/irs-pdf/f1040sc.pdf

Part II is where you list your expenses. There are twenty six categories of business expenses, PLUS a section to discuss the 'home office' dedusction. You want to segregate your expenses according to these categories.

Along with this, I suggest you begin, and maintain, a file dedicated to 'master' documents. You can then reference this log in each specific category. That way, if a single receipt has expenses for multiple areas, you'll know where to find the receipt. (For example, it's quite possible that a single receipt will have charges related to both "vehicle expenses" (line 9) and vehicle leasing (line 20a)

The key is pretty simple: track EVERY expense, and assign it to the appropriate category. Reference any documents, or other substantiation.

What is 'substantiation?' Well, this is where you make a decision, explain your reasoning, and refer to it later. This can be more important than even having receipts.

For example, you can handle tools as either a direct deduction, or you can 'depreciate' them over time. What is important is that you can't do both for the same tool.

Another example is what you can do if, say, someone steals a JoBox full of tools. Replacement cost? Not so fast .... if you've been depreciating those tools over the past few years, your 'loss' is only what you have not yet deducted. This little detail might actually turn the insurance settlement into 'income.' That income, naturally, would allow you to buy new tools, thus starting the depreciation cycle all over again. (BTW, you can 'charge' your time tool shopping off against this loss as well).

It's all a matter of accounting - so an accountant is the guide you need. I have a deal with my CPA .... he doesn't do wiring, and I don't do taxes. What I do is supply him with the information he needs to make his decisions.

Thanks guys. My company is incorporated, so everything it does goes into a category - expense, asset or depreciable - and I have an accountant to do taxes. It's the things that might get missed or are unusual that I'm wondering about.

If you use a percentage of your home for business, you can also use a percentage of cleaning supplies. If you don't know about it, you don't save the receipts and your accountant can't help you.

Few Canadians know that they can use an incorporated company to use dental and glasses as an expense. (with limitations) Some accountants might think of it, but many don't.

So, here is a more specific question, to get you guys thinking. If I use my home for business purposes, I can use as an expense:
- percentage of property tax
- percentage of insurance
- percentage of utilities
- percentage of repairs
- percentage of cleaning supplies
- all of an internet connection
- none of improvements (recommended in Canada)
- ...
- what else?

Then, just to keep it interesting, there are the less common ones, like cat food or promotional clothing.

Substantiation of expenses is a good piece of advice. When you need to explain the expense a few years after it happened, it will be hard to remember.

I don't know if you guys noticed this or not ... the OP is in Canada, not the US.

Some rules are the same. I don't want ideas only from Canadians. Sometimes Americans have good ideas, too. The link to the tax return wasn't exactly on point, for me, but the allowable expenses are the same.

Here the taxman is quite biased against the 'home office' deduction.

In order to use it, the home office pretty much needs to be the only place you do business from, be completely apart from the rest of the house, and not be used for any other activity.

Then, no matter what you do, you can count on the IRS denying the deduction, sending you a bill for tax, penalties, and interest ... then making you fight it out in an audit.

Hence, back in the day I used the services of an accountant who was also a tax adviser and an ex IRS guy.

Never had any issues with deductions & did not 'push the envelope'

That wasn't my experience.