Top 5 Tax Deductions for Self-Employed Entrepreneurs

Are you an entrepreneur? Be sure you are utilizing your tax deductions to lower your taxes owing!

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So you’re an entrepreneur? Being an entrepreneur is a tough gig (although very rewarding). Lucky for you, there are some tax breaks associated with being an entrepreneur.

Are you an entrepreneur? Be sure you are utilizing your tax deductions to lower your taxes owing!

Top Tax Deductions for Entrepreneurs

What is a sole proprietor?

Many entrepreneurs start off as sole proprietors. Being a sole proprietor means that YOU are the business. You are in control of all aspects of your business and you receive all the profits earned. Any profits or losses generated by the business will appear on your personal tax return. There are many deductions you can use on your tax return to lower your taxes payable.

5 Top Tax Deductions

1. Home Office Costs

Many entrepreneurs work out of their home, rather than in a corporate office setting. Did you know if you work from home you can use a tax deduction? If your home is your principal place of business (used more than 50% of the time) you can deduct some of your household costs.

For example, if your office is 10% of the square footage of your home, you may be eligible to claim 10% of:

  • Your mortgage interest (not principal) or rent
  • Property taxes
  • Utilities
  • Home Insurance
  • Home maintenance

Deducting these expenses will help to lower your taxable income. If these expenses are higher than your income for the year, you can carry forward the expenses to deduct from future income.

2. Operating expenses

If you spend money to earn self-employed income then it qualifies as a legitimate expense and you can deduct it from your taxable income. The list of eligible business expenses is HUGE. Here are some notable expenses that you can deduct:

  • Advertising
  • Accounting & legal fees
  • Business licenses
  • Meals and entertainment (allowable up to 50%)
  • Vehicle expenses
  • Supplies

 3. Capital assets

You may be asking ‘what is a capital asset’? A capital asset is any property used for business that will last for many years but will lose its value. Examples of a capital asset are furniture, computer equipment, or a building purchased for business use only.

You can deduct capital assets over a period of time, based on Canada Revenue Agency’s (CRA) specified rates.

The depreciation rates for 2017 are approximately:

  • Building (4% per year)
  • Furniture and fixtures (20% per year)
  • Software (50% per year)
  • Computers and computer equipment (55% per year)
  • Vehicles (30% per year)

For example, furniture purchased for business use would fall under Class according to CRA. 20% of the cost of the equipment is deducted each year until the value equals $0.

4. Interest on Student Loans

It is never fun to have student loans. Luckily, certain interest payments on your loans are deductible on your tax return. The loan must be a federal or provincial loan to qualify. Unfortunately, student loans issued by a bank are not eligible.

Don’t worry if you haven’t deducted interest from your taxable income in the past. You can go back and deduct up to 5 years of interest payments.

If you have no taxes payable for the current year, you should not claim your student loan interest. You can carry forward this interest and apply it on your return for the next 5 years.

5. Loss Carryovers

As a new entrepreneur, your business may not be generating revenue yet. Your business losses can be used to offset your taxable income.

Loss carryovers can be used to offset taxable income for up to 20 years. If you have reduced your taxes owing to $0 for the current year, you can use your losses next year to reduce your taxes owing.

If you haven’t done so already, be sure to keep track of all the finances related to your business. Create a spreadsheet to track your expenditures and revenues. Be sure to file away any copies of receipts and invoices. Beginning to track this now will make it easier to claim any losses in future years.

 

Are you doing your taxes yourself? I personally recommend TurboTax for filing your own taxes.

Do you have any additional deductions you utilize? Share in the comments below!

 

Are you an entrepreneur? Be sure you are utilizing your tax deductions to lower your taxes owing!

 

42 Comment

  1. So many people forget or don’t take advantage of the use of their home for business. Great post!

    1. Thanks, Bobbi! I am glad you enjoyed the post! 🙂

  2. These are very helpful tips, especially for bloggers. I never really think about business expenses. Thanks so much for sharing!

    1. So happy you found this post helpful, Marcie!

  3. Awesome info. Sometimes as entrepreneurs we don’t realise we are eligible for these deductions.

    1. You’re absolutely right, Gillian. As entrepreneurs we need to save money where we can so I knew this would be a helpful post!

    2. You’re absolutely right, Gillian. As entrepreneurs, we need to save money where we can so I knew this would be a helpful post!

  4. I had no idea about carrying over student loan interest and business losses! These are great tips. Thanks for sharing!
    Tricia @ Mamabops recently posted…Valentine’s Cookie Photo Session

    1. So glad you learned something new, Tricia! Carrying over business losses can help save a ton of money on taxes in the future!

  5. This is really helpful. I did not know that student loan can be deducted. This is going to save me a bit of money. Thank you!

  6. What a great post! I was just doing my taxes and not sure what I could deduct for my business. Thanks for the tips.

    1. Glad I could help, Janelle. Hopefully this saves you some money!

  7. Such a timely post! Thanks for the info!

    1. I was hoping to catch people right as they were starting to do their taxes! Hopefully this helps others. 🙂

  8. This is super helpful considering I’ll be doing taxes this year for self employment.

    1. So happy to hear you found this helpful, Jasmine! If you ever have any issues with figuring out your taxes I’d be more than happy to help!

  9. This is a very enlightening post. I have heard about deducting costs of turning the home into an office and I was told this is why employees can only work from home certain number of days a week. I did not actually know this was true.

    1. I am glad you found my post helpful!

  10. Great tips – I deduct many of these from my blog business! The home office one is such a game changer if you cover that cost yourself!
    Valerie recently posted…Cats of Old Town Dubrovnik (A Fluffy Blog Post!)

    1. I think the home office one is something most entrepreneurs don’t know about. It can save you a lot of money too!

  11. Thanks for this list. This is my first year blogging, and I’ve just started working on my taxes. I want to take advantage of as many deductions as possible!

    1. You’re welcome! Hopefully this helps you with the process. The biggest tip I have for new bloggers is to track EVERY expenditure.

  12. As I prepare to do my taxes, this is very helpful! This will be my first year being self employed… not sure I am excited about taxes. 🙂

    1. I am glad you found this helpful. Personally, I am SUPER excited to do my taxes. Haha I find it very fun!

  13. Thanks for these tips! I knew of a few of them, but it looks like I can write off even more this year!
    Joscelyn recently posted…Mini Mixed Berry Pavlovas

  14. Was interesting to read what was tax deductible for you compared to here in the UK. Everything is about the same apart from the student loan interest which isn’t deductible here

    1. Very interesting! I wonder why the chose not to allow you to deduct student loan interest in the UK?

  15. These are some great tips. As a new blogger, I was wondering about tax deductions and all that jazz! I have all my receipts, but probably should have entered them all as I got them, instead of waiting until NOW to get them into my spreadsheet. haha

    1. Well, it’s good you are keeping all of your receipts. Although it will likely save you so much time to enter each expense in your spreadsheet as you pay them! Haha

  16. Great post! Would come in really handy for filing tax returns 🙂 Thanks

    1. So glad to hear that you found my post helpful!

  17. This is great! Perfect timing for going through all the rules and what you can expense.

  18. Now that I’m self-employed full time I have been looking into all the tax deductions. Thankfully my husband is an accountant so he can help me out.

    1. It certainly never hurts to have an accountant in the house! My husband is also an accountant and is an amazing resource for all finance related questions!

  19. Amazing tips! Thanks girl! This was helpful. Tax time is a lot of work for entrepreneurs.

    xoxo,
    http://befittingstyle.com/red-pink-jacket-valentines-day-nyfw/

    1. It really is a lot of work. Luckily, you can save yourself some serious cash if you know what tax deductions are available to you as an entrepreneur/blogger. Glad you enjoyed my tips!

  20. I’ve been learning about all of this much too slowly. For the past two years I’ve gotten the business use of home credit. I wouldn’t know about any of this if it wasn’t for another small business owner. This is so important for bloggers and other small business owners!

    1. It really is very important! You can save yourself a lot of tax dollars by knowing all of the credits available to you!

  21. There are a lot of tax breaks that people don’t take advantage of. Your post will surely enlighten a lot of taxpayers especially those who are doing their taxes. This is a great list of deductions, Amanda!

    In addition to these tips, you can also take advantage of tax breaks if you claim that your parents are your dependents and if you claim at least half of their living expenses. You can also take advantage of tax deductions for long term care insurance premiums. But it has deductible limits based on the person’s age at the end of the year. I hope this additional information helps.
    Samantha recently posted…Essential Preparations in Handling Long Term Care Costs

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