Today, CPA and blogger Angela Williams brings us another instalment in her series on accounting for food bloggers. Tracking income and expenses, doing your taxes … they can all send shivers down the spine of even the most experienced cook or restaurant reviewer. But Angela will be breaking it down and showing us that bookkeeping for your food blog doesn’t have to be hard at all! Today she dives into expensing and tells us why writing off an expense doesn't mean it's free.
When we first met a few weeks ago, I talked about the importance of keeping track of your income and expenses, and saving those pesky receipts. Today I want to talk about why you probably want to track your expenses before you earn a profit, or even income, and some of the items you can expense.
But first, a note: the Canada Revenue Agency (CRA) expressly prohibits anyone from operating a business as a way to avoid taxes. So you cannot decide to be a “food blogger” merely to be able to deduct (you may have heard the term “write off”) certain items. The CRA defines a business as follows:
an activity that you conduct for profit or with a reasonable expectation of profit.
(You can look to P-176R - Application of Profit Test to Carrying on a Business for guidance). If you’re seen as having a loss year after year (after year), it’s likely you’ll receive questions about your business and the validity of the expenses. The CRA may also reassess your prior year tax returns.
When To Start Expensing
You may think you need to wait until you’re earning income or are making a profit before you can expense items related to your food blog, but that would be incorrect.
For example, you’re likely going to need to register your domain and pay for hosting before you have many readers or are earning money. If your intent is to make this your business (and earn income) then you’ll be able to deduct those expenses required to get your business up and running.
What You Can Expense
In general, you’re able to deduct (expense) costs of items used to operate your business. The Tax Act is particularly vague here, because the items that are required for each business are going to be different.
When determining what to expense for your business, consider the following:
- Is this an ordinary expense? Meaning, is it generally something that would be common and accepted in your industry?
- Is this a necessary expense? Expenses should be both helpful and appropriate for your business. For example, as a food blogger, it’s neither necessary nor appropriate to deduct fitness classes from your business, so don’t do that.
The following are some of the more common expenses you’ll be able to deduct in your business, but this is in no way an exhaustive list. If you have questions about a particular expense for your business, please don’t hesitate to reach out to me.
- Hosting costs.
- Conferences (definitely something anyone attending the FBC 2017 conference will want to pay attention to).
- Business use of home (head over here for a downloadable spreadsheet). You’ll also want to include any relevant internet costs here, since your business is online
- Vehicle expenses, if you have a mileage log. Note that if you have a regular office space where you work, you cannot deduct the cost to drive or park your vehicle, and certain conditions will need to be met in order to deduct motor vehicle expenses. This said, if you have a monthly transit pass you’re able to claim this on your personal tax return.
- Groceries related to recipe development (be sure to keep a detailed log to support this).
- Meals and entertainment. Per CRA rules, meals can only be deducted at 50 percent. Consider that if you’re at a business dinner with yourself and another party, the other party's portion is the deductible portion whereas yours is not. If your blog’s purpose is to review restaurants, then we’d examine rules of ordinary and necessary. If the sole purpose of your blog is to review restaurants, then those expenses would likely be classified as ordinary and necessary and would be deducted at 100 percent. If you don't review restaurants regularly, but happen to eat at one and review it on your blog, it's likely this wouldn’t meet the ordinary and necessary criteria.
What You Can’t Expense
Not everything you purchase for your business will be treated as an expense.
Items that are long lived cannot be expensed in full right away (think camera, laptop, camera lenses). You’re able to deduct a portion of these each year at a rate that’s determined by the CRA, known as Capital Cost Allowance, or CCA. We’ll touch on capital (those long-lived assets) and how this works in a separate column. For now, this is all you need to know.
What About Photography Props?
This is a bit of a grey area since photography props are both inexpensive and long-lived (I should hope you aren’t purchasing props for one-time use).
In this case, I'd recommend establishing a policy for your business. Any prop with a cost of more than $200 will be treated as capital (similar to what I’ve noted above) and any prop less than $200 will be expensed. The CRA has a guide to assist in determining what costs are current and what are capital; while it doesn’t state a particular dollar threshold this can be helpful in determining if a lower value item should be treated as capital.
A Word of Caution on Writeoffs
You’ve likely heard “Oh, I’ll just write it off” as a way to justify an expense by a business. Just because something can be written off, doesn’t mean that it’s free. You’re really only saving a portion of the taxes on the item.
To better explain, assume you’re purchasing $50 in groceries to be used in recipe development. We’ve discussed above that these are a reasonable business expense. Now, assume you’re making $250 for the development of the recipe. Finally, we’re going to assume you pay taxes at a rate of 15 percent. (This is a pretty general assumption as each province pays taxes at a different rate, but we’re trying to keep this simple).
If you have no expenses against the $250 you’d owe taxes of $37.50 (15% x $250).
With the groceries, your net income is reduced to $200, so you owe taxes of $30 (15% x $200).
By “writing off” those costs, you’ve saved yourself $7.50 in taxes ($37.50 - $30).
You absolutely want to make sure you’re claiming all of your business costs, but don’t get caught in the trap of thinking that items are free just because you can expense them.
- You may be able to expense items before you earn money
- When determining if you’re eligible to expense an item, consider if it’s ordinary and necessary as part of your business
- Don’t get caught up in the trap of “I can write it off”
- What items count as income?
- What the heck is CCA and what do I do with it?
In the meantime, what are your burning tax and accounting questions? My goal is to make taxes and accounting less scary for you, so you can help me by telling me what you’re struggling with. Leave a comment below and let us know!
- Accounting for Food Bloggers: Tracking Income & Expenses
- Audit-Proof Your Food Blog – Part 1
- Audit-Proof Your Food Blog – Part 2
- Audit-Proof Your Food Blog – Part 3
- Tax Time: Bookkeeping for the Canadian Blogger
Accounting for Food Bloggers is written by Angela Williams, a CPA CA registered in the province of Alberta. During the day, Angela works for an oil and gas company in Calgary and in the evenings you can find her running the river pathways or relaxing with her two cats, Merlin and Charlie. Angela also writes and manages two blogs, Cowgirl Runs and Accounting for Bloggers. You can find her on social media as well, at Instagram, Twitter here and here, and Facebook here and here.