What can independent contractors deduct?

Are you an independent contractor? Learn what expenses are tax deductible and what tax savings you are eligible for during tax time.

Home office expenses

Deduct expenses related to your home office, such as:

•   Utilities
•   Mortgage interest
•   Repairs
•   Property taxes
•   Insurance

The deductible portion of the above expenses is equal to the percentage that your home office space is of the total size of your home. For more information on home office deductions for independent contractors, see How to save taxes for self employed in Canada

Vehicle expenses 

Independent contractors can deduct the expenses related to their car, including:

•   Gas
•   Oil changes
•   Repairs
•   Toll charges
•   Parking
•   Insurance
•   Tax depreciation (if you own) or lease payments (if you lease)

The car expenses listed above can only be deducted to the extent that they were incurred for business purposes. For example, if you drove 50% for business purposes, then 50% of your car expenses are deductible. Keep a log to track the KM’s you have driven for business purposes. For more information on whether it’s better to lease or buy a car for tax purposes, see leasing vs. buying automobile

Supplies and Tools

Supplies and tools purchased are also tax deductible.

The supplies and tools you have purchased for preforming your work are tax deductible. For example, a power drill, hammer, measuring table, stationary, a business phone, or whatever other supplies you need to buy in order to complete your job duties, depending on your line of work.

Computer and Software

Computer purchases can be deducted at a rate of 55% per year for independent contractors. Computers include desktop computers, laptops, notebook computers, tablet PC’s, as well as computer peripherals (e.g. scanner, printer, etc.).

Software is 100% tax deductible. However, only 50% of the amount can be claimed in the year that the software was purchased, and the remaining 50% can be deducted in the subsequent year.

Travel

Travel expenses can be deducted as long as those expenses were incurred for business purposes. For example, air fare and hotel accommodations to attend a business meeting can be deducted on an independent contractor’s income tax return. Trips to Disneyland with the family cannot.

Meals and Entertainment

As a general rule, independent contracts that spend on meals and entertainment can deduct 50% of those expenses. Money spent on personal meals and personal entertainment is non-deductible. However, meals and entertainment expenditures incurred for business purposes, such as meetings with clients, suppliers, and prospects, are 50% deductible. Keep your receipts as proof.

General Rule

The general rule is that any expense incurred for the purpose of earning income from business, as long as that expense is reasonable, is deductible.

ABOUT THE AUTHOR

ALLAN MADAN

CPA, CA

Allan Madan is a CPA, CA and the founder of Madan Chartered Accountant Professional Corporation. Allan provides valuable tax planning, accounting and income tax preparation services in the Greater Toronto Area.

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