Skip to main content

Blog

Welcome to Numetrica's Blog — your hub for expert insights on accounting, bookkeeping, finance, and business strategies.
7 minutes reading time (1466 words)

11 Tax Deductions Every Startup Should Know About Specially The Initial Investments

Eleven Tax Deductions Every Startup Should Know About Specially The Initial Investments

It is extremely important for start-ups, entrepreneurs and even business pros to keep track of their business expenses. These expenses will reduce your taxes when it comes to file your personal tax returns (t1) or corporate tax returns (T2).  When tax season starts the deductions will help and forms your strategic plans to perform tax planning, maximize tax deductions and minimize tax owing. So here are some categories that already exist. All you must do is take advantage of any or all of the following expenses that apply to your business.

Startup Costs

Startup costs are the initial costs that you have made.  Which includes:

  • Incorporation fees,
  • Franchise fees and purchase of an existing business or assets,
  • Opening your business location,
  • Market research and analysis,
  • Business plans write ups,
  • Marketing and advertising,
  • Employee training,
  • Professional fees, such as lawyers, accountants,
  • Initial travel expenses
  • Website development
  • Assets roll-overs to the business
  • Goodwill
  • Home office expenses

Some of these costs are paid before you have even opened your door or announced to the world that your business exists hence they could be missed.  Furthermore, there is misconception that when I paid these my business wasn’t established.  My answer always is you have made and incurred these costs for the intention of running a business, so they do count.

When we prepare personal or corporate taxes or taking on a new client either established or not, we go through these lists and ensure that we uncover them. We have had clients that have missed over $100K. Hard to believe, right?

Here is a case In Ottawa, we had a client that came to us after a year of operation, their balance sheet showed:

Cash 20K

Inventory 5K

Assets 5K

Total 30K

Do you see anything unusual? We did after digging in, he had purchased the business, so this was an existing business. Do you see it? Well, where is incorporation fees, this cost is often capitalized, so it is not here $1,200. Inventory of 5K is low, assets are low. So, after we collected all documents and asked more questions, the balance sheets turned this way:

Cash 20K

Inventory 35K

Assets 40K

Prepaid rent 20K

Incorporation fees 1.2K

Goodwill 90.5K

Total 206.K

Calculate the difference.

We had a similar situation from another client who came to us from Vancouver. He had also purchased a business and missed A LOT of items.

Often even the business owners are confused, their rational is well these are not new, we paid for them. Absolutely correct, when they are not recorded, they will not be accounted for and hence not reflected in financial statements and not expensed or capitalized. In addition, on the flip side, some of these costs were paid by the owners/shareholders, so we record them as “DUE TO SHAREHOLDERS”. What it also means, is that these liabilities to owners/shareholders will be taken out tax free.

A few years back, we had a great client who bought a spa and used his investments of half a million dollars. For quite a few years we were drawing on Due to shareholders account.

Here is a thought-provoking question, why is this missed in the 1st place?

SRED (read as SHRED) or SR&ED Scientific Research and Experimental Development Tax Credit

In Canada, the government provide SRED incentives in a form of tax credit which turns to be a huge refund to companies. Again, as you guessed it, it is also missed, maybe not that often but who knows.

Ottawa is known to be a High-Tech city, so a lot of high-tech companies are head-quartered here in Silicon Valley North. Claiming these credit and refunds in corporate tax returns or even personal tax returns are more complicated than regular T1 and T2. At Numetrica, we file a few SRED Returns each year for our new and existing clients. We even filed one return that client got a refund of over $150K. Imagine ow much work or developments they can perform with that fund.

Accelerated CCA Calculations

In the 2018 Federal Fall Economic Statement, the federal Minister of Finance introduced the Accelerated Investment Incentive (AIIP). This measure allows Canadian businesses to write off a larger share of the cost of newly acquired depreciable assets (tangible and intangible) in the year the investment is made. Only assets acquired and available for use after November 20, 2018 may qualify as AIIP.  Very self explanatory, usually business used to by assets and depreciate them based on a specific rate.  What pained a few businesses was that in the first year of acquisition Income Tax Act prescribed that we use only 50% of the rate.  In 2018, based on the AIIP, we can accelerate the depreciation and depreciate the assets so the companies have an incentive of acquiring new assets and be able to expense them so their cash flow is not hurt as much.

Professional Fees

Again, this is an expense that is missed especially if the professional was hired prior to opening the doors.  Professionals include, accountants, business coaches, business psychologies, web developers, evaluators, agents.

Home Office

Home office expenses include almost any of the physical costs of running an office, such as interest mortgage, property taxes, lease costs, utilities, office supplies, cleaning services and internet fees, home phone. However, there are specific rules for you home space to qualify as a legitimate home office. A home office must be a principal place for doing business and a site that you use on a regular basis.  To calculate the costs, for some it is very straight forward, for example if WIFI is used for the business significantly then it is 100% expensed however for others, what you need to do is measure the total area of your home and your office.  Obtain the percentage for home office, ie, 20% then 20% of your home costs can be expensed. One more note, create a habit of calculating these costs on a monthly basis and sending an expense report to your company/corporation and get reimbursed.  To make this easy for our clients, we have created an excel template which includes a lot of possible items that could potentially be used in the business. When they had the data, the spreadsheeted gives them the total and calculates the HST.  This practice also creates a great audit trail in case CRA is asking for details of home office expense.

Sub-contractor Costs

If you are hiring another professional to help you and performs part of your work process, the costs are deductible. This can include let’s say you have hired someone online from Fiverr.

Software Subscription Fees

Any software subscription fees that you are using in your business can be written off. For instance, Microsoft, antivirus, QBO fees, Receipt bank fees, google G Suits, …

I suggest that you go through your credit card statements and flag fees that you are uncertain and tell us what the fees are for. We will have a look and can tell you if you can claim them or not.

Holiday Parties

Yes, there are allowances such as catering for Christmas that are tax deductible.

Travel

Travels in relation to running, managing, and growing your business is considered tax deductible. I.e., driving to see your accountant, lawyers, marketing expert, going to the bank, post office, network parties, trade shows, seminars … you can also claim the miles you drive to meet clients and for other business purposes.

Best way to keep track mileage is to use apps that are specifically designed for this purpose.

Marketing and Advertising

Beside the obvious marketing costs, whatever activities that you are undertaking to promote your business and its associated costs are potentially expenses. To assess whether such costs are eligible, ask this question, if someone else was supposed to do what would have been his/her costs.  Foe example, if you wanted a marketing professional to put your company sign on his car and drive around town during rush hour, how much would that person charge you? What would be his expenses? Well, that person, would have to go buy a car, get insurance, licence, put gas in his/her car, print the sign and so on. So, if you are doing this yourself, these are your costs as well. Use this rational for other costs to determine their eligibility.

Banking and Interest Expenses

Interest and expenses are definitely accounted for however, self-employed individual always miss this. The reason is they were paying for these costs proper to going to business so they assume since this was personal expense before, government won’t allow the deductions. True, however, now that the account is used for the business those costs are business costs.

Read more on how to choose the best tax professional here.

×
Stay Informed

When you subscribe to the blog, we will send you an e-mail when there are new updates on the site so you wouldn't miss them.

7 Small Business Apps That Will Transform Business...
Three Benefits of Having a CFO For Your Business
 

Comments

No comments made yet. Be the first to submit a comment
Already Registered? Login Here
Thursday, 28 March 2024

One-Stop Shop for Accounting
and Bookkeeping in Ottawa

Frequently Asked Questions - FAQs

Does Numetrica offer tax services for small businesses in Ottawa?

Absolutely! Numetrica is your expert small business accountant in Ottawa, dedicated to providing exceptional tax services tailored for the unique needs of small businesses. We are committed to delivering expert tax preparation, accurate filing, and insightful strategic planning. Our tax services are designed to efficiently minimize tax liabilities and enhance deductions, ensuring that your small business not only adheres to the latest tax regulations but also optimizes financial opportunities.

What makes Numetrica different from other accounting firms in Ottawa?

Numetrica stands out as a leader among accounting firms in Ottawa for our personalized approach & comprehensive expertise in accounting & bookkeeping services. We focus on building long-term relationships with our clients, offering customized solutions that evolve with your business.

What accounting services does Numetrica offer in Ottawa?

Numetrica provides a comprehensive range of bookkeeping and accounting services in Ottawa, including financial statement preparation, tax planning, payroll services, and business coaching.

Our Ottawa accounting firm specializes in both personal tax and corporate tax services, providing tailored solutions to meet the specific needs of your business or personal finances. Whether you're a growing business seeking robust corporate tax strategies or an individual in need of personalized tax guidance, Numetrica is equipped to deliver excellence.

How can Numetrica's bookkeeping services benefit my business in Ottawa?

Our bookkeeping services in Ottawa offer meticulous record-keeping and financial analysis, helping you make informed decisions, maintain cash flow, and streamline your financial processes. We use the latest software and practices to ensure your finances are managed efficiently.

How much does bookkeeping cost in Ottawa?

The cost of bookkeeping services in Ottawa can vary widely depending on several factors such as the size of your business, the volume of transactions, the complexity of your financial needs, and the level of expertise required.

Contact us detailed quote based on your specific business needs. Remember, investing in professional bookkeeping can save you time and money in the long run by ensuring accurate financial records and compliance with tax laws.

Numetrica Accounting

Awards / Featured On

Reviews

Check what some of our clients are saying about our services.
  • Samantha Biron

    I highly recommend Moe Tabesh. His service is phenomenal, to say the least. His tax knowledge is extensive and he’s been able to save me a substantial amount of money by following his recommendations. In addition, he is warm, kind, understanding, positive, and flexible, which are qualities I find rare in most accountants I’ve worked with. You’re in good hands with Moe, I can’t recommend him enough.

    Samantha Biron

    President and Founder, Find Your Tribe
  • Jeremy Prudhomme

    Moe and everyone at Numetrica have been incredible at helping with my new corporation and corporate and personal tax returns and my other small business. Their accounting skills are out of this world and the technology they use makes everything so simple and fast. The time you will save will be worth every penny. Thanks again Moe for all your help!

    Jeremy Prudhomme

    CEO, Jeeman TV
  • Farshid Dehnavi

    Mr Tabesh (Captain Number Cruncher) and his perfect team are not only professional in their fields, they are extremely passionate about their clients! Numetrica City continues to support us with corporate and personal tax returns, bookkeeping (thank you so much Sherry ) and We are so happy and appreciative for you and your responsible team, Moe!!!
    I really recommend these guys to everybody.

    Farshid Dehnavi

    President and CEO, Ink Plus
  • Keddy Declan

    I did my first Corporate tax return and cloud accounting with Numetrica City and I am very satisfied with the work they did. The team was very responsive and answered all my questions. I 1000% recommend their services.

    Keddy Declan

    CEO , IT Referrals
  • Sibeso Kehinde

    I would highly recommend Numetrica City-Accountants, Tax and Bookkeepers. Exceptional customer service. I am assured that all my company tax services and payroll are taken care of because of the great team that Moe has. I like the fact that I do not have to worry about driving to a physical location for my accounting services, my company's accounting tax preparations are done online due to the excellent cloud service Numetrica City has. Definitely score a10/10. Thank you for all the good work that you guys do. Greatly appreciated!

    Sibeso Kehinde

    OUR PROCESS

    Discovery

    Discovery

    We’d love to hear about your goals and aspirations. After understanding the big picture, we’ll dig into the details of your bookkeeping process so we can assess your needs.
    Proposal

    Proposal

    Once we understand your needs, we’ll send over a proposal that outlines our plan for tackling your challenges and a fixed monthly price for those bookkeeping services.
    Set-up

    Set-up

    Once you accept our proposal, we’ll get your bookkeeping tidied and up to date and begin implementing cloud accounting tools that will ensure proper bookkeeping going forward.
    Get Connected

    Get Connected

    Once the set-up is done, the hard part is over. You’ll be connected to your CPA-level bookkeeper and they will become your main point of contact.
    Reviews

    Reviews

    Once the clean up is done, the hard part is over. You’ll get connected to your bookkeeper and he/she will become your main point of contact. Don’t worry, we only select the best CPA or CPA students.

    Your Unfair Advantage

    Stay up-to-date on the latest accounting news, tax updates, and financial tips. Stay ahead of the game and make informed financial decisions with our expert insights and analysis. Sign up now to start receiving our newsletter!

    Join our family

    Clients

    Carling Dental
    David Pratt
    Vitallab Solutions
    iHotWeb
    Loon Kambucha
    Jeeman
    Samuel Associates
    Downtown Dental
    Numetrica

    Trust in the superhero accountants of Numetrica to keep your numbers in order and for expert advice on growing your business. Numetrica specializes in providing clients with in-depth accounting and bookkeeping services in Canada and the United States as well as financial advice to assist you in making the right decisions for your business.