Home Based Businesses

There are many ways and reasons to operate a business.  The easiest way is to run a proprietor business out of your home.  It is easy because all you need is an idea and a space and you are good to go.  In comparison getting an incorporated business going requires more money and is way more complex.  The book keeping and accounting are more complex and way more expensive for incorporated businesses.

Home based businesses are a great way to make extra money in your spare time or create a career from home when other commitments like children limit your ability to work outside the home.  Some common examples of home based businesses are: Multilevel marketing, Amway, Jewel way, vitamins and health, fitness, or any other products that can be marketed online. 

Home based businesses allow you to make money and write off expenses that you normally cannot expense.  For instance you can write off a home office (part of your home), cell phone, and some of your vehicle expenses.  In some cases, if the business requires it, you can write of product you use personally as it is a requirement of being involved with the organization that you purchase a certain amount every month or year.

It is important to note that while you can write of certain expenses you should not get carried away.  Only expenses that can be shown as directly related to the business qualify for tax deductions.  In addition you MUST ensure that you keep all your receipts, keep them organized, and treat the business seriously.  It is ok to do a home based business solely for the tax benefits, but you MUST ensure that you can support what you are doing to the CRA should they ask.  After all the purpose of a business is to make money, not to lose it.

Here are some important points to remember:

  • Home office expenses can only be deducted to the extent that there is taxable income.Home office expenses cannot increase or create a loss.

  • Expenses MUST be business related.Flying the family (or yourself) to Hawaii is very rarely business related.

  • Conferences and Training Courses are legitimate expenses even if they are in Hawaii.BUT if the conference is 2 days and you go for 2 weeks, only 2/14 of the travel expenses qualify for a tax deduction.

  • Expenses reduce taxes by your tax rate.If you are paying 32% tax then you will save $32 of tax for every $100 that you spend on business related stuff.

As was said in the Spiderman comic “with great power comes great responsibility”, If you are going to run a business you MUST take your responsibilities seriously by keeping good records and filing your taxes on time.

On last comment I would like to make is DO NOT let your “friends” tell you what is deductible and tell you about the things they have deducted.  THEY WILL GET YOU INTO TROUBLE!!  If you have questions about taxes ask me!!  I will ensure you deduct everything you are entitled too, and will make sure that you do not get in trouble with the CRA.