Understanding corporate tax deductions is an essential part of running a successful business. Whether it’s through ordinary and necessary operating expenses or capital expenditures like machinery purchases – understanding how tax deductions work can help you maximize your profits
In this blog, our tax accountants will break down the ins and outs of corporate tax deductions so business owners can take full advantage of them.
What Are Corporate Tax Deductions?
Corporate tax deductions are simply reductions in the taxable income of your business. The amount you can deduct depends on the type of expenses incurred and other factors, such as the size and structure of your business. Two main corporate tax deductions are ordinary and necessary business expenses and capital expenditures.
1. Ordinary & Necessary Business Expenses
These expenses are incurred in the normal course of doing business, such as rent, salaries, supplies, equipment, advertising, office space, etc. These types of deductible expenses must be:
- Ordinary: Regularly seen in your line of work
- Necessary: They must be required for running your business
Your tax advisor can deduct these expenses from your taxable income for that year.
For example: if a company spent $10,000 on advertising for its new product launch, it could deduct this from its taxable income for that year. This would reduce its overall taxes owed that year by reducing its taxable income.
2. Capital Expenditures
Capital expenditures are larger investments a company makes to acquire or improve assets with a useful life greater than one year (such as machinery or equipment). These types of investments can also be deducted from taxable income over several years through depreciation. Depreciation is an accounting method that spreads out higher costs over multiple years to reduce taxes owed each year.
For example: if a company purchased machinery at $100,000 in one year, they may not be able to deduct this amount immediately but instead depreciate it over five years. This means they would deduct $20,000 yearly until the total cost has been accounted for in their books.
Hire Corporate Tax Accountants In Markham
At Accounting Plus, our tax advisor offers year-round tax and accounting support and advice to entrepreneurs and small business owners. Our corporate tax services include year-end adjustments, tax adjustments, appeals, reviews, relief, trust returns (T3), and much more.
Our firm offers cloud-driven accounting solutions powered by Xero. In addition to corporate tax services, we also offer accounting and bookkeeping, personal tax services, cloudbased accounting solutions Canada, and much more.