A business expense is a cost you have for the sole purpose of earning your business income. If an expense does not contribute to the process of earning your business income, you likely can’t claim it. If you pay for a personal expense through your company, it’s recorded to your shareholder loan, which means you’ll pay personal tax on it. You should keep all your expense receipts – the more backup you have, the better.
Alcohol & Meals are only supposed to be claimed when they are business related – such as taking out prospective clients. Some meals can also be claimed when you are required to travel for work. If you’re working around town, then buying fast-food is a personal expense and should be paid for with your personal card.
LOA (Living out allowance or subsistence) – There are a lot of conditions (including tracking requirements/forms) that need to be met to take LOA from your company. Plus, if you want to pay yourself a tax-free living out allowance then you need to personally pay for all your living out expenses (your company can’t pay them) and you need to be an employee of your company (taking a salary). In most cases, it’s easier and more beneficial to just have your corporation pay for all your living out expenses. You can ready more about LOA here.
Home expenses such as utilities/rent/mortgage – You can’t deduct personal home expenses through your company. However, if you have a home office or use part of your home for business then an adjustment can be made when your corporate taxes are being prepared. If you want a more detailed adjustment then you’ll need to let your accountant know the square footage of your house that’s used for business, square footage of total house and all home expenses for the year Note: mortgage principal doesn’t count – just interest.
Medical expenses are typically personal expenses. If you have multiple, unrelated, employees and a benefit plan for everyone in the company (your benefits are the same as your other employees) then you can use your company benefit plan. You can also deduct an insurance plan like BlueCross, but the “cost plus” type plans are usually a no-go even though they market themselves as legit.
Gift cards – Stay away. If you’re in an industry where it makes sense to give gift cards to clients (i.e. realtors giving a gift card to a client that just bought a house through them), then make sure to track every gift card and the contact info for each person they’re given to. Cash or gift cards that are given to employees are a “taxable benefit”, meaning they get taxed on these payments.
Work Clothes – These are OK to run through the business if it’s for protective gear or distinctive uniforms/advertisement (i.e. your logo on shirts). You can also deduct work clothes that are required and used exclusively for work (i.e. coveralls for welders/mechanics). You cannot deduct any clothing that can be used for everyday use (even if they’re bought to impress clients) like suits, dress shirts, snazzy clothes, t-shirts, shoes etc.
If you’re ever questioning what can be purchased through your business, it’s best to check with your bookkeeper or accountant. They want what’s best for your business!
Fixed assets refer to assets that a company owns and uses in its business operations for a long period of time. Fixed assets can take many forms and are typically purchased with the intention of using them for several years.
As the owner of a small company, you need to decide how you want to pay yourself. Dividends or salary?