In most cases, incurred expenses associated with business or property income earning are tax deductible. A good number of our expenditures will be completely deductible in the year they are incurred. However, certain exemptions and limitations exist when it comes to business expenses write-offs.

Fixed assets, or capital costs like land, vehicles, buildings, computers, machinery and equipment, are not completely deductible in the year they are purchased. On your balance sheet, these items will be recorded as assets. For the purpose of taxes and accounting, a portion of their costs will be written off each year, with the exception of land. For tax purposes, this is known as capital cost allowance, while it is called depreciation or amortization for accounting purposes. The Income Tax Act states the rate that can be used in writing off the fixed assets as capital cost allowance, which will often be different from the depreciation recorded on your financial statements. Except you are in the business of buying and selling land, land cannot be written off as an expense.

For computer equipment and certain other assets bought after March 18, 2007, capital cost allowance rates were raised from 45% to 55%. However, you need to enquire from your tax advisor, how this is applicable to your purchases. Also ask your advisor how you can obtain help from separate classes for swiftly depreciating electronic equipment.

The writing off of inventory against income will be done when the goods are sold. Prior to that time, the costs are reflected on your balance sheet as inventory. Prepaid expenses deduction will be in part, and in the year paid. The portion associated with a future fiscal year will be spent in that year, and reflected on the balance sheet as prepaid expenses waiting that time.

Accruals have to be performed at the end of the fiscal year period in order to record incurred costs that has not been paid. This way, it will be certain that your costs are recorded for the purposes of tax, and that you also claim your GST/HST input tax credits at a date that is as early as possible. The information giving so far about prepaid expenses and accruals gives a description of record keeping in the situation where accrual basis of accounting is used. The individuals in fishing or farming business or those who are self-employed commission sales agents, are permitted by the Income Tax Act to embark on the cash basis of accounting, and all the revenues and expenses are recorded when the income is received or paid.

The preparation of your income statement and other financial statements should be done in accordance to Generally Accepted Accounting Principles (GAAP). For this to be accomplished there is need to keep your receipts as well as comprehensive information about your expenses, so that either you or your accountant can classify them adequately.

You can consult other relevant materials on line on how to go about your business expenses write-offs for tax purposes.