This past year was the first year where my online income was actually a factor when it came time to do my taxes - because Dave and I didn’t really doing a good job keeping track of our expenses, I had a pretty tough time and ended up just estimating a little on the high end.
I figured after learning from my mistakes, I could pass along the lessons learned to you, our readers.
The biggest misconception when it comes to tax deductions is that people don’t realize when you deduct $200 from your taxes, you’re not actually paying $200 less. You simply don’t have to pay taxes on that $200, so if you’re paying 22% tax, then your actual savings would be $44. As well, not all things are 100% deductible in the year they were purchased: items like computers and office furniture have a 33% depreciation rate, so every year, you can claim 33% of your purchase price until you’ve deducted it all. If you spend $1000 on a new computer, then you can deduct $330 from your taxable income - which would net you $72.60 in actual tax savings (assuming 22% taxes).
One important detail for webmasters is that 100% of your web development costs (ie. web design and coding) are deductible; very few other industries have that, so you can really keep your taxes down simply by developing all those good ideas.
As well, being self employed, you have access to a huge number of other deductions - if you own your house, for example, you can deduct a portion of your interest costs as well as phone, hydro and internet. If you’ve set up your business properly, you can also deduct most of your gas expenses. As well, if you lease a vehicle you can deduct part of the cost as well. A word of caution when it comes to leased vehicles: one of my tenants recently got pinched after leasing a small fleet of vans for his business in his own name. He was deducting the costs as a business expense, however because they were in his name, and he had no documentation saying he had leased them to his business, he is now forced to pay back taxes with penalties and interest - so I would strongly suggest you talk to an accountant to make sure you’re doing things the right way!
As a small business person it’s your job, your duty to king and country, to keep track of all your receipts. As silly as it may sound, you can make deductions for your 2 large double-doubles at Tim Hortons.
As a general rule of thumb, you should keep every receipt you get, and whenever possible make it known that you want one before the job has even begun. Then once the job is paid, print out a copy of your paypal transaction or anything else that shows you paid it, so you can be sure to make a claim at the end of the year.
Here’s a list of things that should be deductible; be sure to consult with an accountant as I am not an accounting professional and this article should not be considered as professional advice!
- A portion of the interest paid on your home mortgage
- Cell phone & portion of home phone costs
- Internet connection
- Web hosting & domains
- Advertising (adwords, paid links, etc.)
- If your vehicle is leased, you should be allowed a portion
- New computer
- Software (not gaming related)
- Office furniture (that desk or chair you just bought from Ikea)
- Coding work and web designs
As a general rule of thumb, save all your receipts and meet with an accountant at least once, just to ask some questions.
When push comes to shove, we give enough to the government - let’s not give them more to waste than we absolutely have to!