Be That Business Newsletter #5: Three Helpful Hacks on Business Expenses; Determining Expenses, Mileage Tracking, and Home Office Expenses

We are in the thick of tax season. Feb 28th is the deadline for the institutions and businesses to get out the income slips, donation receipts and the like to all the taxpayers of Canada. And now Canadians are gathering their pages and their totals, ready to tell CRA how much they owe. (Check out 60 seconds of funny here on Joe Zimmerman’s take on the onus being on the taxpayer…)

For business owners, it’s more than just gathering a few T4s and donation receipts. Sole Proprietors are taxed on the profit of their business. And the profit of their business is directly related to the expenses that are recorded.
I’m often asked, what expenses can a business claim? There are the obvious ones of course. A list of the standard categories to add up can be found at here, but what are the not so obvious transactions that a business needs to track? What expenses can a business claim?
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I wrote a blogpost a few years back “What Expenses Can a Business Claim?” that dives into that very question. My newsletter today though, aims to shift the perspective. Instead of just focusing on adding everything up in a scramble when the year is done, savvy entrepreneurs know that keeping track of these things during the year will save them time and headaches in the spring. Looking back is only half the story. Use this month’s hacks to help you track what you need for this year's tax season!

There are three categories of business expenses: Direct Expenses, Mixed Use Expenses, and potentially “Business use of home” expenses. Here are my hacks for knowing and tracking these expenses:

3 Business Hacks:

1. Direct Expenses – You want to make sure to capture all the transactions that occurred that would not have happened if you were not running the business. For those items that you are unsure if they would be an eligible expense or not, use my hack: “Would I reimburse an employee for that?”. For example, if you were at a job site that was far enough away from home that you and your crew needed to stay overnight in a hotel, would you cover the hotel cost for them? Yes. Also, because they could not go home to pack a lunch the next day, you would probably cover their travel meal. But back at the main office, if they went out at lunch to buy themselves McDonalds, and brought back the receipt, would you cover that? Probably not, especially if they did that every day! Using the “would I reimburse an employee for this” hack can be extremely helpful in deciding if it is an expense you believe is related to running the business or not. Construction companies offer compensation to their employees for safety rated steel toed boots. In contrast, if one of your sales reps came into your office and said, “I need to have fresh breath for when I do my sales pitch to prospective clients, so I expect you to cover the cost of my toothpaste” you would likely think he was crazy! Apply hack this when analyzing your own your expenses. Claim the safety boots. Ignore the toothpaste.
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2. Mixed Use Expenses – There are expenses that would happen if you were not running a business, such as vehicle expenses, cell phone expenses, etc. But these expenses are HIGHER because you are running a business! I dive deeper into this in my blog post, but regarding vehicles specifically, you should keep a vehicle log. And today’s hack: There’s an app for that! Whether you choose to track your business kilometers with QBO’s app on your phone (yup, if you use QBO, you can use the app to track your business km!), or if you choose to use one that is automated based on your movements such as MileIQ (at the end of the day, swipe each trip right or left, just like Tinder!), there are many options out there!
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3. Business Use of Home Expenses - These are your home expenses that you would have even if you were not running a business, and that are likely not that much higher because you are running a business. We can claim a percentage of them as this is compensating for the area of your home that you have set aside to use as an office to run your business. Because we only claim a small percentage, it is usually just an adjustment at the end of the year. So then how do you track them? Here’s the hack: If you are not incorporated, you can track these in your business bookkeeping software by creating a GL Account on the balance sheet. Call it “Owner’s Equity – Home Expenses”. Enter the bill on the bill date, paid by “Cash”, (or by the bank, if you have paid it out of your business bank account”), but put the expense category to “Owner’s Equity – Home Expenses”. DON’T claim any HST. But, for the weird Hydro bills, put the HST amount in the description. Now, at the end of the year, when everyone else is hunting down their home expenses, you’re way ahead with a downloadable list of all your home bills! All of the home expenses you can claim a portion of is listed out at the bottom of my blog post.

​Be Intentional Today!
Get out there, and Be That Business That Thrives!​