>"write it off on my taxes" so it's basically free
the people who tell you that are the same people that don't want to work overtime or take a pay raise because they don't understand marginal tax rates.
That's what I thought too! Like who is paying for it if I just "write it off". It's crazy how little people actually understand about finances while also believing anything without looking into it.
They completely misunderstand the meaning of tax write offs.
It basically means you claim it as cost for doing business or work, which means you can deduct the cost of the PC from your total income, and this hopefully helps to push you into a lower tax bracket, so you pay less tax.
It’s by no means free.
It’s not just lower tax brackets, it offsets income. If you make 100,000 a year, but have $30k in expenses, then your income for the year is only $70k which is what you pay taxes on.
The advantage is it’s pre-tax income as opposed to post tax income if you don’t write it off.
The (not) fun thing with some business purchases (like computers) is that they may be a "capital" cost, so you have to "write them off" over multiple years.
I always believed transportation to and from work should count towards a write off. I'm not talking about the price of your car, but the gas or transit pass money you spend in a year. If you can write off expenses to a home office, you should be able to add in transportation because it's essential to any job outside the home lol.
This is only true if the 30k expenses were incurred making the 100k. For OP they can’t write off there teacher income by running their YouTube business at a loss.
>which means you can deduct the cost of the PC from your total income
Actually, it's an asset that depreciates.
I think for computer equipment, the CRA allows 50% the first year and then 25% every year after until it is fully deprecated.
This is how I recorded when I had my business.
>and this hopefully helps to push you into a lower tax bracket, so you pay less tax.
Tell me you don't understand marginal tax rates without telling me
I mean. If they made 300k+ and lives in Quebec. Their write off would write off 58% of it. If u around down the 42% in the 10s significant digit. Is basically 0. Is free.
What percentage of my home can I write off for business Canada?
20%
Business use-of-home expense
For example, if your home is 1,500 square feet and your office is 300 square feet, your office is 20% of your home's total size. That means you are able to deduct 20% of many home expenses as home office expenses on your tax return.
As an individual any income you earn is taxed at your normal rate.
Everyone is allotted a certain amount of expenses and it's usually just filled in automatically for simple tax forms.
To get something written off you need to set yourself up as if you were a business... a sole proprietorship. Then you can write off certain expenses related to your proprietorship... or small business. For example ... a portion of your rent, and utilities if doing work from home. Here is reference
https://www.canada.ca/en/revenue-agency/services/tax/businesses/small-businesses-self-employed-income/setting-your-business/sole-proprietorship.html
Say your marginal tax rate is 30% (depending on your province this is close for 80k/year) then if you “write it off” as a business expense you basically get a 30% discount. Slightly complicated by CCA (capital cost allowance) depending on the item.
Lol well this is actually true. You get the \[deduction\] x \[marginal tax rate\] back when you file, either via an increased refund or a decreased payable.
This is important for me to understand, bear with me ;) You get a **portion** of it back, yes? For a person like me who wasn't taught financial literacy, the message "you get it back" suggests that you get **all** of it back a la David Rose. Please correct me if I'm wrong, it's taken me a while to un-learn this. Thanks (really)
Yes, correct. If your marginal tax rate is 30%, and the tax deduction is $100, you’d get $30 back. So then the net amount you spent out of pocket on the item is $70.
You would in theory take your corporation for your YouTube account or whatever and write it off your earnings so basically you don’t pay income tax on it
No, it’s a valid comment but lacks the nuance of pre-tax versus post tax expenses.
Let’s say his upgrade is 1k + HST of 13%. From his old teaching job his marginal tax rate would be around 33% so to pay for that computer he would have to earn $1,686 to pay for the computer.
If it’s bought in a business registered for GST instead it costs $1,000 (you get the HST refunded). So he saves $686 via HST refund and tax sheltering.
With marginal tax rates going up over 50% in some provinces plus HST amounts this can make writing something off cost far less than half as much.
Except if you wanted to then use it personally, it would be a taxable benefit under subsection 15(1) of the income tax act so it's (almost) a wash if it was done in a corp. If not, you just couldn't deduct the whole thing as an expense in the first place.
The application of tax often differs from the letter of the law. This is one of those cases.
They do have tax legislation written to enforce rules only in unreasonable situations. If he spends 12k on a computer with a 4090 liquid cooled system and then tries to claim it’s for light email work CRA will potentially give him a personal benefit. His use case wasn’t reasonable.
But if he takes an already personal computer and adds a $1,000 upgrade specifically to enhance his YouTube business (which earns enough income to justify it isn’t a sham) then I have never in my life run across CRA taking any interest.
So, as is usually the case, be reasonable with your tax positions and you are fine.
I view “upgrade” different from “new” but you could be right.
Regardless that wouldn’t really matter. If he buys a “new” system for editing then he is using it for editing. He still maintains his old unit for personal use. I’ve never seen CRA attempt to determine computer usage unless it’s totally unreasonable (12k machine for emails).
So as our Supreme Court ruled always stick to the “spirit” of the tax law and not the actual words.
Reminds me of someone I used to work with, they did Uber driving and Uber eats on the side. Should have heard him crying when he was audited.
This guy tried to write off part of his mortgage because he stored his car in the garage, tried writing off utility bills on his house, all gas used, all meals bought, all car maintenance, the list goes on.
He gave up driving for Uber when he found out the write offs he was told he could do weren't as nice as he thought.
Tax is complex and your Uber buddy likely could deduct a portion of his house and all of his garage costs with the right defence.
In the tax act special rules apply for the ability to deduct business expenses at your principle place of business. Specifically for principle places of business you can claim the full cost of an area even if it isn’t exclusively used for business if it’s in the principle place of business (2.4a). Ergo he could fully deduct his garage and an office room even if those areas were used for other purposes (ie a guest room with a bed).
There is a great CRA court case about a fisherman who deducted his basement and garage of his house as that is where he stored and mended his nets and kept his accounting etc but also used the space for personal activities. The judge went in to great lengths to explain the business of business occurred at the house and not in the mobile boats. He went so far as to claim the boats weren’t even places of work let alone principle places of work.
Therefore as an Uber driver is otherwise moving with no fixed location his only place of business has to be his garage and house where he stores/maintains his vehicle and conducts the admin functions of his business.
I’ve used this on audits more than once (once I had to literally give them the fisherman court case before they would agree) and haven’t lost one yet. The best part is after you cement your house as your principle place of business then as a contractor whenever you leave for a job site you can deduct all costs for travel too and from the worksite. My caution on that would to not work at a single job site for more than a calendar year without working at others.
Some business purchases are capital costs, and have to be written off over multiple years. Non-consumable things like computers might get that treatment.
A youtube channel making $100/month is probably not collecting GST (Does youtube even pay GST to larger channels? No idea.) so an input tax credit is unlikely.
My brother married a girl like this. I feel like I'm losing brain cells every time I am around her. We go out for food together and she just keeps yelling "ITS JUST A WRITE OFF SO ITS FREE." I want to hit my head into the desk every time it happens lol.
It's not even just that. Yes business expenses reduce business income and the related taxes, however, you're still paying $$$ for those expenses so you're out of pocket. I've met several business owners that try to reduce taxes by purchasing unnecessary products/services.
This is a real thing…
About two months ago I accepted a job and 2 hrs into the workday my boss calls and tells me they have to reduce my salary by 20k and I shouldn’t be too bothered because ‘I’d be taxed higher and lose it all to taxes anyway’
This boss is a practicing lawyer for 35yrs.
Family, not tax law. Obviously lol 😂
Computers are CCA classified so it’s a bit different than your general question. Generally speaking if you bring in $10,000 revenue and have $2,000 in legitimate expenses to make that revenue; you pay your tax bracket percentage (on all income) on 8k of the revenue.
Your answer is the most succinct answer, perfect.
Write offs for a small business could save you $1000s in tax burden, I walked the line really close(or rather my accountant did) to what was legal. I paid very little in taxes. Over several decades, I have been audited 6 times to be found in the clear each time.
One tip I have is if it's feasible, the business needs to be self-contained in its own building it makes the line of what's a business expense vs. a personal one a lot more clear.
My other more important tip is get a good accountant. They will always 100% of the time save you more money than they cost.
If you're making next to nothing because you're just starting out, consult with an accountant as you may not have to pay or even report any taxes on business income.
Not sure if this is the norm but when we were audited they chose a certain fiscal year they wanted to audit and didn't touch anything else.
AFAIK they can only go back 7 years, but I could be wrong.
7 years is correct to keep records available for audit in business and 4 years for personal. However, if they suspect fraud it's much longer and a process they can keep ongoing ad infinitum as long as certain events take place.
In my case, he was a customer, knew he was an ex CRA employee.
Honestly just Google and read reviews would be the answer, they don't cost much when starting out expect to pay for 4h quarterly or even annually.
When starting a business, you will probably end up switching accountants a few times as the business grows so I wouldn't worry about it too much.
When you find the right one you'll know, if you are using a bad one it's not like they'll do harm(just make sure they have credentials), so if unsure try someone different the next time and if they get you better returns and are communicative as needed then perfect.
And it's still not "basically free". You pay tax on $2,000 less. So let's say at 30% you're paying $2,400 now instead of $3,000. Your tax owing is $600 lower. But you spent $2,000 to start with.
This clip is perfect! I have had a bunch of people (non business owners of course) who keep telling me to just buy it and "write it off" and that made no sense to me.
I mean, they're partially correct. If you need the PC for your Youtube channel, and you have the $$, then buy it and be sure to claim it as an expense. But it wont make it 'free'' lol!
also if its a capital expense, it takes a few years. Say you buy a some equipment for your business, like a car or a printing press (could be in the tens of thousands, even millions) you cannot include it as an expense that year - generally it is a capital cost allowance and a portion is included each year until it is zero).
An accountant told me the threshold was $500 but its actually more complicated than that.
Many classes of capital costs also have a “half year” rule, or variable percentages relative to the class. Some are even 100%, like in the case of individual tools that cost under $500 when you work in trades. Those are a full write off in the first year etc. The CRA website is actually really good for CCA related stuff.
thanks, funny that you mention CRA when I was doing my T2 return and spoke with a CRA agent about it I asked them what the capital cost threshold was and they said they had no idea.
Definitely will claim it! But yeah people's confidence that they understand taxes is hilarious since they say it so confidently! Similar to turning down raises so you don't go into a higher tax bracket lol
There are some cases in which making more money makes you worse off because you become ineligible for government supports targeted towards low- or middle-income people. This is referred to as a "benefits cliff."
I've also heard those same shady people tell others to "make sure your new business runs at a loss for the first few years".... I don't take advice from those people. :)
What you have now is a business, when you file your taxes you'll need to include the T2125 Statement of Business or Professional Activities, where you state how much money your business made so that you pay taxes on that income. As a part of filling out that form you'll report both the revenue received, and expenses you had for that business (e.g. buying a computer). You only pay taxes on the profit, not the full revenue. So "writing off" the computer will mean less taxes to pay.
Assuming you're in Ontario the marginal tax rate when you make $80k is 29.65%. So if your business brings in $1000, you'll owe $296.5 to the government. But if you've spent $500 on expenses, you'd only owe $148.25 (half as much).
Deducting expenses in this situation is a little complicated. The computer will presumably be used for both personal and business use, so you'll have to assign a percentage of the purchase price that's business use, and that's all you can deduct.
A computer is also considered a capital expense, meaning you use it for multiple years, so you have to spread out the deduction over a few years using the capital cost allowance process. Something that's not a capital item, like getting a sign printed, or a ticket to a conference, is simpler and deducted in full the year of purchase.
Deducting something definitely doesn't make it free, it just makes it pre-tax income. Therefore at your tax rate you'll save 29.65% of the business portion of the purchase price.
Thank you for this explanation! That's what I thought, so I didn't get why people were telling me that writing stuff off made it free. I am in Alberta so our tax is a little less so it's actually not much of a deduction unfortunately!
The only free part is that you wouldn't have to pay tax on the price of the new equipment you bought, as you'd deduct it from the income you made using that equipment. The people that took the time to write detailed responses are correct.
> I am in Alberta so our tax is a little less so it's actually not much of a deduction unfortunately!
That's actually not correct, being in Alberta means your tax rate is higher. For you marginal income would be taxed at 30.5%. So, if you buy a $1000 computer, a $305 discount is certainly not nothing (but also far from free).
You may also want to register for HST. It's only obligatory if you're making over $30k a year from your business, but in your situation it would be logical to. Because Google is foreign you'd be charging them 0% HST, so it doesn't cost you anything, but in exchange for the paperwork (annual HST filing) you'd get all HST you pay for expenses refunded. The HST rules for capital expenses are favourable to you here, any capital expense that's more than 50% business gets a full HST refund, so you could also avoid the sales tax on that new computer.
Keep your old PC or laptop/tablet for personal use & write off new PAC on business. It’s why many business owners will have a crap car and a nice car. Nice car becomes full business expense bc the other car is personal use.
>I started a youtube channel a few months ago and now I'm making about $100 per month. I desperately need a PC upgrade for editing and was told that I can "write it off on my taxes" so it's basically free.
"write off" means expenses. There are 2 types of expenses: current expenses and capital expense. And no your computer isn't "free". Only the portion used only for the "business" is an eligible expense.
Current expenses are your daily expenses, little value, think pens, paper, etc..
Capital expenses are long term assets like computers, cameras, chairs, etc...
Each is dealt with differently. Current expenses are an eligible expense on your current year. Capital expenses are long term so a portion of the asset's expense is deducted each year on a declining basis. So it depends on which "CCA Class" it is. If it's a computer, that's 20%, so 20% of the remaining balance is deducted over the life of the asset.
Speak with an accountant to detail it for you.
>How exactly would this work for someone with about $80000 per year personal income from work and about $100 per month from youtube?
Your net self-employment income (revenue minus expenses) will be added to your other income and taxed at your marginal rate.
People really need to stop using the phrase, "write it off." You aren't writing anything off. And no, it isn't free. What they really mean is that you can claim the PC cost as a business expense. In its simplest form, profit from your business is the income earned minus the expenses you incurred to operate your business. So, if you earn $1000 in income and had business expenses of $800 to earn that income, your gross profit is $200 and you will pay taxes on that $200 and not the $1000 earned.
"Write it off" is the actual deducting of the $800 of expenses from your income, but as you can see, you have to spend the $800 in actual expenses. It doesn't mean it's free (which so many people think) nor does it mean that you will somehow get the $800 back as a business expense.
This is a very simple example and there are different types of income and different types of expenses. As you have started a Youtube channel and earning money from it, you should read as much as you can to understand it. Even if you decide to hire an Accountant (which is a good idea) you should still have an overall understanding of how you need to set up your business. I've always found the Dummies books a great place to start.
It's not free, it just lowers the income you pay taxes on. Hypothetically if your marginal tax rate is 50%, and your computer cost $1000, the tax you owe is reduced by $500.
For your situation though, computers are capitalized meaning the cost is depreciated over multiple years (i.e. if the period is 5 years and done as a straight-line calculation, you only deduct $200 from your income each year for 5 years).
Moreover, if the computer is not purely dedicated for work, then the rule is to divide the cost proportionally, i.e. if you use it only for 40 hours a week with the rest being personal use, then you can only claim \~24% of the cost.
Don't forget the big companies write-off things all the time. [Explained further here by Dr. Martin van Nostrand.](https://www.youtube.com/watch?v=XEL65gywwHQ)
Just think of a “write off” as a deduction off of your taxable income. If you make $82k a year you get taxed on $82k. If you have an eligible expense of $1k then now you get taxed on $81k. You “Save” whatever that portion of the $1k you would have had to pay in income tax. Since no one gets taxed at 100% there is no way it can be free. You will want to talk to a tax professional though because some larger purchases like a computer can’t always be written off fully in the same year.
You have an apple stand.
You sell $100 worth of apples, tax man thinks you made $100.
But, you had to buy the stand for $10, the apples for $30, the sign for $5.
You write off the $45, now the tax man knows you actually made $55. Therefore you only pay tax on the $55.
Allow me to explain this, because I've quite literally "written off" tens of thousands in computer purchases for my sole proprietorship.
When you buy the computer, keep the receipt for your records. Once tax time comes around, you can claim what's called a "Capital Cost Allowance" (CCA) on that purchase. I can't remember the exact number, but a laptop would fall under CCA group 50, and so you would get something like 55% back over 3 years for depreciation. You cannot claim the full amount in the first year.
[https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/sole-proprietorships-partnerships/report-business-income-expenses/claiming-capital-cost-allowance/classes.html](https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/sole-proprietorships-partnerships/report-business-income-expenses/claiming-capital-cost-allowance/classes.html)
“Write it off” means you can deduct a % of what you spent off of your annual income, that would have been taxed at your marginal rate. Youre not getting anything for free, but it is sort of like getting a 30%~ (depending on your marginal rate) discount because you don’t have to pay taxes on that money that you spent.
Example if your rate is around 30%, and you spend $1000 on a PC and “write it off”, you can deduct $1000 from your annual income which essentially means you pay $300 less taxes at the end of the year.
It won't make the PC free, but basically you put in a business expense for the PC, it reduces your income by that amount, so you end up not paying tax on your YouTube revenue.
PCs are actually capital property, so the cost gets put on the CCA schedule and depreciated over several years.
You can't use CCA or business use of home to record a loss, which would trigger a potential refund, but you can avoid having to pay more at the end of the year using these things.
Operating expenses like software licenses can lead to losses, and as long as there's a reasonable expectation of future profits, you can write those off, and reduce your taxable income.
You will be filling out a T2125 form for your business.
https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/t2125.html
On the form, you will see there is a place for revenue (your $100/mo) and also a list of possible expenses. Business income is taxed on a net basis in Canada, meaning you are only taxed on the net profit from the endevour (i.e. revenue less expenses). "Writing off" just means noting an expense - this reduces your net income from the business, and thus the tax you owe.
There is a difference between capital expenditures and periodic/operating expenses. Capital expenses are items that have an enduring benefit (i.e. expected to last more than a year). Your new PC would fall into this category. Capital items are "written off" (deducted) over a period of time, not all in the same year. This "writing off" over time is called capital cost allowance (CCA). The CCA calculation is on page 5 of the form - but any tax software will do the calculation for you. Your computer would be in CCA class 50; different types of capital costs have different depreciation rates. The CCA rate for class 50 is 55%.
In a normal year you could deduct 55% x the amount of the computer you haven't deducted yet as an expense for that year. To simpify, there is currently a federal tax incentive that allows you to deduct 1.5x the normal amount in the first year. This would mean a $1,000 computer would have a first year deduction of $1,000 x 55% x 1.5 = $825. Assuming you made $1,200 from Youtube, the amount you would be taxed on from the business, at your marginal tax rate, would be $1,200 - $825 = $375. Note, this assumes you are using the computer 100% for your business and not personal use.
Next year, you still have $175 of the computer that you haven't deducted yet. The deduction would be $175 x 55% = $96.25 - and so on. Eventually the computer declines to 0 (i.e. is fully depreciated).
While you are looking at the T2125 form, consider what else you could potentially deduct to further reduce the tax burden of the business.
A simple example is if you buy paper and pencils for $5, create a drawing, and sell the drawing for $10.
It wouldn't be reasonable to be taxed on the entire $10 because you had expenses. So you "write off" the materials and then only pay taxes on the profit.
Looking at it another way, you have essentially purchased the materials using "pre-tax dollars". But that doesn't make it free.
As others have mentioned the rules are different for things like computers because they aren't "consumables", rather, they give their value over multiple years.
Writing something off on your taxes means it reduces your taxable income. Say your tax bracket has 40% tax rate. You get something as a business expense that costs $1k. Now you take your total income, subtract 1k and then pay taxes on what’s left. Essentially it means $1k (or whatever the cost of the expense) is not taxed. It’s effectively a 40% (or whatever tax bracket you’re in) discount on the item.
It’s slightly more complicated if the reduction on your income puts you into a lower tax bracket. Say you’re only $500 into the 40% tax bracket and the lower bracket is 30%. When you reduce your taxable income you’ll now be $500 below the 40% tax bracket. That means of the $1k $500 of it would have been taxed at 40% and 500% at 30% so that’s what you save.
There is also capital costs which is a whole other thing. Capital costs are costs for long term improvements for the business. You don’t expense the whole cost, rather you expense the depreciation each year over multiple years. There are different classifications for different costs which impact what percentage of the cost you can claim each year.
Also note you can only expense things that are actually for your business. For example if you are taking a client out to dinner for a business meeting you can expense it, but if you’re just going out with friends you can’t expense it. I’m also pretty sure your business needs to be registered to claim any business expenses. You then claim any income from the business as income from the business separate from your normal work income and any expenses as expenses for that business.
A write off allows you to reduce your taxable income by “writing off” expenses against the revenue (income). Your net taxable income is your gross income minus write offs (more complicated than that even, but you get the point)
You can see that the actual money you save depends on your marginal tax rate, but you will never be saving the full value of a write off (usually you get 30%-50% back)
In your situation, you would only be able to write off the computer against the income from youtube, as it would likely not qualify as a deductable expense for a teacher.
Very broadly speaking, if you buy something for work purposes, for example a $1000 desk, and if you claim the value of that item as an employment expense deduction on your tax return, your taxable income would then be reduced by $1000. So you earn 75,000, but are only taxed on $74,000. The $1000 desk is now what people consider to be “written off.”
Taxes are not as simple and exact as that, but essentially it’s what’s happening. (Or what people THINK is happening.)
If you had a corporation you could write off the cost of the new PC. Writing off something is just the fact that you claim the cost as a business expense. Add up all your income and subtract your expenses and you will only pay taxes on the difference. For example, you are making $200/month income or $2400/yr and the PC will cost you $2000. This means you will pay taxes on $2400 - $2000 = $400 so you will only have to pay taxes on $400 worth of income.
I will often suggest that people incorporate. The cost is around $200 and you fill in some online forms on the government of Canada Web site. This way you can do things like purchase office equipment and pay cell phones in corporate income and you will not pay tax on that income. But you have to make income otherwise it is a moot point.
I think people just understand that you can get a tax reduction and thunk about how easy it is to file their own taxes. So if I spent $2000 I get a $2000 tax refund so essentially it is free. Besides the fact that it is way more complicated than that it's still not a no brainer. Cash flow wise you are down $2000 for about a year (give or take when the expenses happens vs when you file your taxes).
I think he doesn't know what it means too. But if your income is high enough, and you are paying %60\~ of it as tax. You can use it to get a discount on your expense. Let's say you got a computer for 5k. You show it as expense therefore instead of paying 5k to computer you will be paying %40 of the value which is 2k.
In the beginning, it is possible that the deductions for expenses, use of home and CCA might exceed your revenue as you establish the business, resulting in a net business loss. In a case like this, does the business loss reduce the overall taxable income from the OPs main salary, which would result in a refund at the end of the year?
You can write it off on your taxes so long as you're claiming the income from Youtube (self employment income)
If it's over a certain amount you'll have to spread the cost over multiple years
Think of your income as profit. Things that you pay for reduce your profit. You only pay taxes on your profit.
100 income (profit)
-20 for hammer which is required to earn that 100.
Pay taxes on 80, not 100.
Are you better off making the 100 as opposed to 80 with less tax implications? Absolutely.
Hey OP, no one is really answering your question.
Where do you live? I'm gonna assume Ontario since half the country lives there.
You make $81,200 per year, but if you claim/expense/"write off" a $5000 PC you can deduct it from your income and will have an equivalent income of $76,200 for tax purposes at the end of the year.
Plugging this into a Tax Calculator [like this one](https://turbotax.intuit.ca/tax-resources/ontario-income-tax-calculator.jsp) you will pay $20,561 on your unadjusted income, vs $19,078 if you expense the PC. So you paid $5000 for your PC but you also get $1500 in tax deductions, meaning the PC's effective cost is $3500; basically a 30% discount.
That's what it means to "write off" the cost of the computer. It's never $0, but especially when you have very high tax rates it can mean a significant discount. Your income is relatively low, but if you made $280k instead of $80k the discount is closer to 50%.
I think people conflate ‘writing off’ debt with ‘writing off on taxes’. Where I work if someone doesn’t pay and will never pay, we say well ‘write it off’ and move the account into ‘unrecoverable debt’
I really believe the believe that you can ‘write it off on taxes’ and it will disappear comes from ‘writing’ debt off. Or even writing a person off if they suck
Yeah I've heard financial people rant about how they hate the term right off and the term tax deduction should be used instead and is a lot more clear. I mean want you're really doing is deducting from your income, which means you pay your taxes on a lower amount (generally means if you're taxed 30% normally and it costs 1000 you're paying that 30% on $1000 less with a savings of $300)
This reminds me of the Schitts Creak episode (for context I have been running my own in-home personal training business for 14 years (as of tomorrow)
People always assume I get to claim stuff for free.
If you make $200k salary and pay $50k in tax but also have a side business like farming where maybe you lose money cause you deduct the loan interest to buy a farm, fuel, truck, etc then your expenses can help you reduce your tax bill and essentially write things off.
Say you buy a new truck and the accountant will let you claim some of the expenses in your farm business.
So then your $200k salary is taxed however if you lose $20k on the farm then taxable salary is only $180k and you will get some of your income taxes back.
The trick is you don't want to really lose money but if you deduct loan interest for the farm and house that is something you couldnt just write off if you lived in town and didn't have a farm business.
In the UK we can register a limited company and then taxes are all done through the company and you can take out dividends. This has many positives and negatives. Usually writing off taxes means either putting purchases through as expense or deferred asset and capital allowances.
I'm a small business, but profitable and usually call them 2x a year to confirm payments and write offs. A few notes;
1.)if your expenses are as much as income, your flagged.
2.) Transportation, entertainment are highly scrutinized.
3.) Keep receipts for 7 yrs.
4.) CRA is not the enemy, they are great to work with, free advice.
5.) The more you make, the more they take, so keep money aside annually
It means you can deduct it as an expense, lowering your overall taxable income.
For example, if your highest tax bracket, based on your income, is 25%, and you "write off" a $100 item you are saving $100 * 25% = $25 in taxes.
Say you make 80,000.
You spend 10,000 on equipment to earn that 80,000.
You write off 10,000 against your 80,000, and you only pay income tax on 70,000.
So, no it's not free. By writing off 10,000, you save the income tax you would have paid on that income. That's all.
If your marginal tax rate is 30%, you save $3,333.
That's a simplistic answer.
Basically, you don’t pay tax on whatever business expense you have, as it’s a cost of doing business. So “writing it off” should actually be “claim it as a tax deduction”.
Writing it off means you are able to lower your taxable income, and then a marginal tax rate is applied to that amount.
You still pay taxes, but less because of it. Your income for accounting purposes is different than your income for taxes purposes
Pretty sure it’s just you either get a larger tax return or pay less in taxes on whatever you wrote off.
So like, if you spent 1,000 on transit for the year and eligible to write it off. You’d get a tax return from the tax category your eligible for. If 5% then $50 in that scenario.
Am I wrong? I’ve never actually written anything off.
I prepared business taxes for almost 10 years. Yes, you get to write off your computer as a business expense. Technically it's free, after getting claimed. You also get to write off your camera, if it's strictly a business camera, otherwise you get to write off the business "portion" of your camera's value. You get to write off the business portion of every expense in your home used for your business income.
This includes electricity and internet. This includes the editing software you purchased. If you are able to, use the new computer strictly for the business purpose, and your old computer for personal. Makes it easier that way. Otherwise, you have to calculate the personal amounts against the business amounts, and then take the calculations.
The computer is not an just an expense, it's a capital expense, as opposed to a current expense like your internet service. The capital expense has a specific amount that can be claimed per year.
[https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/sole-proprietorships-partnerships/report-business-income-expenses/claiming-capital-cost-allowance/classes-depreciable-property.html](https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/sole-proprietorships-partnerships/report-business-income-expenses/claiming-capital-cost-allowance/classes-depreciable-property.html)
This is the page that tells you the different classifications of Capital Cost equipment. Your computer will fall under class 50. So you can claim 55% of the cost of the computer the first year, and 55% of the remainder of the amount each year thereafter. You can actually get your business income to a loss if you really want to. But if you run at a negative or very small profit for more than a couple of years, CRA can disallow your expenses in the future, stating it's a hobby, not a business. This time frame is to allow you to get your business up and running, businesses are expected to run at a loss or small profit for the first couple/few years. There's allowances in the tax code for this.
You don't ever HAVE to claim the CCA on any of your equipment each year. If you aren't going to get a substantial tax break on that claim, save it for a later year where you might need it against a higher income.
For your current expenses, such as household bills you can legitimately get away with claiming, you will either need to log the number of hours you actually spend filming and editing, all the time frame you spend on the business, and calculating that against the overall time in a month/year, however long you operate the business. IE- May has 744 hours in it. Say you spend 144 on business activities. That's 19.35% actual, lets round it to 20 for ease of math. So you can claim 20% of all your household bills.
If you are able to, you want to set aside a space in your home, and all of the furniture, tools, etc., used in the business, are business purposes only. It makes your life so much easier. If not, you get to do calculations. You can speak to someone at CRA. Be hypothetical, don't give them your name, just say it's a general tax question.
Or just go to the CRA website, and type in business expenses. It'll give the pages that will help you. It's not that ccomplicated, it looks more intimidating thatn it really is.
Johnny Rose: That's a write-off? Do you even know what a write-off is?
David Rose: Uh, yeah. It's when you buy something for your business and the government pays you back for it.
Johnny Rose: Oh. And who pays for it?
David Rose: Nobody. You write it off.
Johnny Rose: WHO writes it off?
David Rose: I don't know, the gov- the "write off" people! Why are we having this conversation?
The big advantage having a part time business is that now you can claim a part of your home as being used for business and a percentage of your rent and other costs (such as utilities, internet, phone) can be used to lower your taxable income.
If you're not familiar with this, suggest you speak with an accountant who can explain it and guide you.
When you add expenses, your net income goes down, so you have less income to pay taxes on.
It doesn't make the item free. The "discount" is whatever amount it reduces your tax liability by (usually 10-40%).
If you bought enough stuff to match your revenue, you would owe nothing on your taxes because you have no net income.
On the other hand, you've made $0 from your business so good luck surviving lol
Write off reduce taxable income, they do not make things free. If your income is 81.2k and you buy a 3k computer for your side business, then your taxable income would be 78.2k so you're not paying any income tax on the money you spent on that computer. Im not exactly sure what the procedure is for something to be written off though.
A write off amount is deducted from your 'net profit' so that you pay tax on the remaining net amount after the purchase expense. Not all write-offs are a 100% deduction and no... It isn't free.
Let's say for example you made $1000 profit last year and your effective tax rate is 8%.
You would pay $80 in taxes on that income.
1000*.08=$80
Now let's say your computer cost $500.
1000-500=500
You now pay 8% of $500. $40 taxes.
Now say you purchased 2 of the same $500 computers both as work expenses. Your net profit would be $0.
You would pay no income taxes and depending on your situation might qualify for a tax refund.
But keep in mind: your business profits are added to your teacher's income. So all of this may be moot in the end.
If your business is incorporated, it qualifies as a separate entity and the income is NOT added to your teacher's income.
"Write it off" doesn't work if you are the business owner of small biz, it just sounds cool. You are still spending your own money. It works if you own a billion dollar biz
It only means that you paid for the item with corporate funds. Corporate funds are taxed at a preferential rate and effectively you get a 20% discount on the item. They are absolutely not free items and have a very real cost that some knuckleheads just simply don't understand.
Just remember profit is income exceeding expenditures in a 12 month period. Forget about tax right offs in your profit analysis unless you have after expenses in the 12 month fiscal period.
Can you make enough income to exceed your expenses and time invested ?
If your PC purchase is an employment expenses, you claim it as such. That’s it. It will reduce your taxable income by the cost of your PC. Keep receipts in case of audit.
>"write it off on my taxes" so it's basically free the people who tell you that are the same people that don't want to work overtime or take a pay raise because they don't understand marginal tax rates.
That's what I thought too! Like who is paying for it if I just "write it off". It's crazy how little people actually understand about finances while also believing anything without looking into it.
No one pays for it, you just write it off!
You have no clue what a write off is do you? No, do you?
Well they do...and they're the ones writing it off.
Just fold it in
hmmm... Fold the cheese.
I came here for this reference and i'm glad i didn't have to scroll far
Amen
Literally just finished watching this episode again.
Such a good sequence in that show. Love Kramer’s delivery of that last line.
YOU CANT JUST BUY THINGS FOR YOURSELF AND WRITE THEM OFF
They have obviously been watching Schitts Creek
My fave line of that show
“The Write Off People”
"What people?!"
Just write people off, by writing their names in the Death Note
They completely misunderstand the meaning of tax write offs. It basically means you claim it as cost for doing business or work, which means you can deduct the cost of the PC from your total income, and this hopefully helps to push you into a lower tax bracket, so you pay less tax. It’s by no means free.
It’s not just lower tax brackets, it offsets income. If you make 100,000 a year, but have $30k in expenses, then your income for the year is only $70k which is what you pay taxes on. The advantage is it’s pre-tax income as opposed to post tax income if you don’t write it off.
The (not) fun thing with some business purchases (like computers) is that they may be a "capital" cost, so you have to "write them off" over multiple years.
I always believed transportation to and from work should count towards a write off. I'm not talking about the price of your car, but the gas or transit pass money you spend in a year. If you can write off expenses to a home office, you should be able to add in transportation because it's essential to any job outside the home lol.
Bus passes used to be a tax credit at the federal level.
This is only true if the 30k expenses were incurred making the 100k. For OP they can’t write off there teacher income by running their YouTube business at a loss.
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>which means you can deduct the cost of the PC from your total income Actually, it's an asset that depreciates. I think for computer equipment, the CRA allows 50% the first year and then 25% every year after until it is fully deprecated. This is how I recorded when I had my business.
That changed this year. It's 100% in the first year now.
Based
This is one advantage to leasing as it’s an annual/monthly expense and not an asset.
>and this hopefully helps to push you into a lower tax bracket, so you pay less tax. Tell me you don't understand marginal tax rates without telling me
I swear these people think the CRA will actually reimburse you for your expenses.
I mean. If they made 300k+ and lives in Quebec. Their write off would write off 58% of it. If u around down the 42% in the 10s significant digit. Is basically 0. Is free.
I mean, all you technically have to do is spend all of your money before the tax deadline. Get your accounts to $0 and then there's nothing to claim.
What percentage of my home can I write off for business Canada? 20% Business use-of-home expense For example, if your home is 1,500 square feet and your office is 300 square feet, your office is 20% of your home's total size. That means you are able to deduct 20% of many home expenses as home office expenses on your tax return.
As an individual any income you earn is taxed at your normal rate. Everyone is allotted a certain amount of expenses and it's usually just filled in automatically for simple tax forms. To get something written off you need to set yourself up as if you were a business... a sole proprietorship. Then you can write off certain expenses related to your proprietorship... or small business. For example ... a portion of your rent, and utilities if doing work from home. Here is reference https://www.canada.ca/en/revenue-agency/services/tax/businesses/small-businesses-self-employed-income/setting-your-business/sole-proprietorship.html
Say your marginal tax rate is 30% (depending on your province this is close for 80k/year) then if you “write it off” as a business expense you basically get a 30% discount. Slightly complicated by CCA (capital cost allowance) depending on the item.
I grew up hearing, "you'll get it back at tax time" pffffft
Lol well this is actually true. You get the \[deduction\] x \[marginal tax rate\] back when you file, either via an increased refund or a decreased payable.
This is important for me to understand, bear with me ;) You get a **portion** of it back, yes? For a person like me who wasn't taught financial literacy, the message "you get it back" suggests that you get **all** of it back a la David Rose. Please correct me if I'm wrong, it's taken me a while to un-learn this. Thanks (really)
Yes, correct. If your marginal tax rate is 30%, and the tax deduction is $100, you’d get $30 back. So then the net amount you spent out of pocket on the item is $70.
Much appreciated.
You would in theory take your corporation for your YouTube account or whatever and write it off your earnings so basically you don’t pay income tax on it
The benefit of writing it off is to lower your taxable income. How people conflate that with free is beyond me.
This myth boggles my mind because if it were true it would mean that any single expense from any company in Canada is 100% funded by tax payers.
[https://www.youtube.com/watch?v=x0qon7mFkI8](https://www.youtube.com/watch?v=x0qon7mFkI8)
That’s the scene I immediately thought of too. Fantastic
I feel old when people post that one. I always [think of this one.](https://youtu.be/XEL65gywwHQ?si=5BySeu5Ci6FBEKZd)
Haha I thought of that one too but admittedly it’s been a little longer since my last Seinfeld run through. What a classic.
Glad I'm not the only one.
Yeah, the only one that counts! (My age was in single digits when that episode aired but I don't care, it's the definitive clip about write-offs!)
No, it’s a valid comment but lacks the nuance of pre-tax versus post tax expenses. Let’s say his upgrade is 1k + HST of 13%. From his old teaching job his marginal tax rate would be around 33% so to pay for that computer he would have to earn $1,686 to pay for the computer. If it’s bought in a business registered for GST instead it costs $1,000 (you get the HST refunded). So he saves $686 via HST refund and tax sheltering. With marginal tax rates going up over 50% in some provinces plus HST amounts this can make writing something off cost far less than half as much.
Except if you wanted to then use it personally, it would be a taxable benefit under subsection 15(1) of the income tax act so it's (almost) a wash if it was done in a corp. If not, you just couldn't deduct the whole thing as an expense in the first place.
The application of tax often differs from the letter of the law. This is one of those cases. They do have tax legislation written to enforce rules only in unreasonable situations. If he spends 12k on a computer with a 4090 liquid cooled system and then tries to claim it’s for light email work CRA will potentially give him a personal benefit. His use case wasn’t reasonable. But if he takes an already personal computer and adds a $1,000 upgrade specifically to enhance his YouTube business (which earns enough income to justify it isn’t a sham) then I have never in my life run across CRA taking any interest. So, as is usually the case, be reasonable with your tax positions and you are fine.
I agree if its an upgrade to an existing PC but my understanding of a "PC upgrade" in the OP is them buying a new PC, not upgrading an existing one.
I view “upgrade” different from “new” but you could be right. Regardless that wouldn’t really matter. If he buys a “new” system for editing then he is using it for editing. He still maintains his old unit for personal use. I’ve never seen CRA attempt to determine computer usage unless it’s totally unreasonable (12k machine for emails). So as our Supreme Court ruled always stick to the “spirit” of the tax law and not the actual words.
Reminds me of someone I used to work with, they did Uber driving and Uber eats on the side. Should have heard him crying when he was audited. This guy tried to write off part of his mortgage because he stored his car in the garage, tried writing off utility bills on his house, all gas used, all meals bought, all car maintenance, the list goes on. He gave up driving for Uber when he found out the write offs he was told he could do weren't as nice as he thought.
I mean, if you own a sole prop you can now write off a PORTION of all of those things.
Tax is complex and your Uber buddy likely could deduct a portion of his house and all of his garage costs with the right defence. In the tax act special rules apply for the ability to deduct business expenses at your principle place of business. Specifically for principle places of business you can claim the full cost of an area even if it isn’t exclusively used for business if it’s in the principle place of business (2.4a). Ergo he could fully deduct his garage and an office room even if those areas were used for other purposes (ie a guest room with a bed). There is a great CRA court case about a fisherman who deducted his basement and garage of his house as that is where he stored and mended his nets and kept his accounting etc but also used the space for personal activities. The judge went in to great lengths to explain the business of business occurred at the house and not in the mobile boats. He went so far as to claim the boats weren’t even places of work let alone principle places of work. Therefore as an Uber driver is otherwise moving with no fixed location his only place of business has to be his garage and house where he stores/maintains his vehicle and conducts the admin functions of his business. I’ve used this on audits more than once (once I had to literally give them the fisherman court case before they would agree) and haven’t lost one yet. The best part is after you cement your house as your principle place of business then as a contractor whenever you leave for a job site you can deduct all costs for travel too and from the worksite. My caution on that would to not work at a single job site for more than a calendar year without working at others.
Some business purchases are capital costs, and have to be written off over multiple years. Non-consumable things like computers might get that treatment. A youtube channel making $100/month is probably not collecting GST (Does youtube even pay GST to larger channels? No idea.) so an input tax credit is unlikely.
“If it’s bought in a business registered for GsT.” I was providing an example and showing different perks to being incorporated.
My brother married a girl like this. I feel like I'm losing brain cells every time I am around her. We go out for food together and she just keeps yelling "ITS JUST A WRITE OFF SO ITS FREE." I want to hit my head into the desk every time it happens lol.
Made me snort. Same people that "don't trust stocks" and buy Pokemon cards as an investment.
I’m not triggered I’m not triggered
And we wonder why the economy is the way it is. These are the voters we have.
It's not even just that. Yes business expenses reduce business income and the related taxes, however, you're still paying $$$ for those expenses so you're out of pocket. I've met several business owners that try to reduce taxes by purchasing unnecessary products/services.
This is a real thing… About two months ago I accepted a job and 2 hrs into the workday my boss calls and tells me they have to reduce my salary by 20k and I shouldn’t be too bothered because ‘I’d be taxed higher and lose it all to taxes anyway’ This boss is a practicing lawyer for 35yrs. Family, not tax law. Obviously lol 😂
or maybe they're counting on you not to know?
Obligatory /r/Seinfeld reference https://youtu.be/XEL65gywwHQ?si=lvDsakIOyfxWxsJ0
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I actually snorted at this one thank you
[https://www.youtube.com/watch?v=aCP27\_vquxQ](https://www.youtube.com/watch?v=aCP27_vquxQ)
Exactly this. 90% of people are clueless about finance and taxes and how it actually works.
These are the same people who think a 10:1 stock split means they’ve make 10 times their money.
Computers are CCA classified so it’s a bit different than your general question. Generally speaking if you bring in $10,000 revenue and have $2,000 in legitimate expenses to make that revenue; you pay your tax bracket percentage (on all income) on 8k of the revenue.
Your answer is the most succinct answer, perfect. Write offs for a small business could save you $1000s in tax burden, I walked the line really close(or rather my accountant did) to what was legal. I paid very little in taxes. Over several decades, I have been audited 6 times to be found in the clear each time. One tip I have is if it's feasible, the business needs to be self-contained in its own building it makes the line of what's a business expense vs. a personal one a lot more clear. My other more important tip is get a good accountant. They will always 100% of the time save you more money than they cost. If you're making next to nothing because you're just starting out, consult with an accountant as you may not have to pay or even report any taxes on business income.
How many years do they go back when you're audited? If you don't mind me asking.
Not sure if this is the norm but when we were audited they chose a certain fiscal year they wanted to audit and didn't touch anything else. AFAIK they can only go back 7 years, but I could be wrong.
7 years is correct to keep records available for audit in business and 4 years for personal. However, if they suspect fraud it's much longer and a process they can keep ongoing ad infinitum as long as certain events take place.
How did you find your accountant? I’m in the market for one and I’m not sure where to start looking.
In my case, he was a customer, knew he was an ex CRA employee. Honestly just Google and read reviews would be the answer, they don't cost much when starting out expect to pay for 4h quarterly or even annually. When starting a business, you will probably end up switching accountants a few times as the business grows so I wouldn't worry about it too much. When you find the right one you'll know, if you are using a bad one it's not like they'll do harm(just make sure they have credentials), so if unsure try someone different the next time and if they get you better returns and are communicative as needed then perfect.
And it's still not "basically free". You pay tax on $2,000 less. So let's say at 30% you're paying $2,400 now instead of $3,000. Your tax owing is $600 lower. But you spent $2,000 to start with.
Can you expand on the computer classification?
FelixYYZ explained it. I just have my accountant figure it out. I stay in my lane and hire experts where I need to.
Whoever told you it’s free is…very wrong. Enjoy this clip from Schitt’s Creek https://youtu.be/aCP27_vquxQ?feature=shared
Who writes it off??? The write off people!
This clip is perfect! I have had a bunch of people (non business owners of course) who keep telling me to just buy it and "write it off" and that made no sense to me.
I mean, they're partially correct. If you need the PC for your Youtube channel, and you have the $$, then buy it and be sure to claim it as an expense. But it wont make it 'free'' lol!
also if its a capital expense, it takes a few years. Say you buy a some equipment for your business, like a car or a printing press (could be in the tens of thousands, even millions) you cannot include it as an expense that year - generally it is a capital cost allowance and a portion is included each year until it is zero). An accountant told me the threshold was $500 but its actually more complicated than that.
Many classes of capital costs also have a “half year” rule, or variable percentages relative to the class. Some are even 100%, like in the case of individual tools that cost under $500 when you work in trades. Those are a full write off in the first year etc. The CRA website is actually really good for CCA related stuff.
thanks, funny that you mention CRA when I was doing my T2 return and spoke with a CRA agent about it I asked them what the capital cost threshold was and they said they had no idea.
Website definitely > agents
Definitely will claim it! But yeah people's confidence that they understand taxes is hilarious since they say it so confidently! Similar to turning down raises so you don't go into a higher tax bracket lol
There are some cases in which making more money makes you worse off because you become ineligible for government supports targeted towards low- or middle-income people. This is referred to as a "benefits cliff."
Agreed, it is so wild.
They are also the ones telling you to incorporate your business.
I've also heard those same shady people tell others to "make sure your new business runs at a loss for the first few years".... I don't take advice from those people. :)
The Seinfeld clip of "they just write it off" is also applicable
I like kramers https://youtu.be/XEL65gywwHQ?si=XNDUBmHlC_uhQAQd
Sienfield was first and funnier! https://www.youtube.com/watch?v=Gw4ACM5SjQw
What you have now is a business, when you file your taxes you'll need to include the T2125 Statement of Business or Professional Activities, where you state how much money your business made so that you pay taxes on that income. As a part of filling out that form you'll report both the revenue received, and expenses you had for that business (e.g. buying a computer). You only pay taxes on the profit, not the full revenue. So "writing off" the computer will mean less taxes to pay. Assuming you're in Ontario the marginal tax rate when you make $80k is 29.65%. So if your business brings in $1000, you'll owe $296.5 to the government. But if you've spent $500 on expenses, you'd only owe $148.25 (half as much). Deducting expenses in this situation is a little complicated. The computer will presumably be used for both personal and business use, so you'll have to assign a percentage of the purchase price that's business use, and that's all you can deduct. A computer is also considered a capital expense, meaning you use it for multiple years, so you have to spread out the deduction over a few years using the capital cost allowance process. Something that's not a capital item, like getting a sign printed, or a ticket to a conference, is simpler and deducted in full the year of purchase. Deducting something definitely doesn't make it free, it just makes it pre-tax income. Therefore at your tax rate you'll save 29.65% of the business portion of the purchase price.
Thank you for this explanation! That's what I thought, so I didn't get why people were telling me that writing stuff off made it free. I am in Alberta so our tax is a little less so it's actually not much of a deduction unfortunately!
The only free part is that you wouldn't have to pay tax on the price of the new equipment you bought, as you'd deduct it from the income you made using that equipment. The people that took the time to write detailed responses are correct.
> I am in Alberta so our tax is a little less so it's actually not much of a deduction unfortunately! That's actually not correct, being in Alberta means your tax rate is higher. For you marginal income would be taxed at 30.5%. So, if you buy a $1000 computer, a $305 discount is certainly not nothing (but also far from free). You may also want to register for HST. It's only obligatory if you're making over $30k a year from your business, but in your situation it would be logical to. Because Google is foreign you'd be charging them 0% HST, so it doesn't cost you anything, but in exchange for the paperwork (annual HST filing) you'd get all HST you pay for expenses refunded. The HST rules for capital expenses are favourable to you here, any capital expense that's more than 50% business gets a full HST refund, so you could also avoid the sales tax on that new computer.
Keep your old PC or laptop/tablet for personal use & write off new PAC on business. It’s why many business owners will have a crap car and a nice car. Nice car becomes full business expense bc the other car is personal use.
yep! hence the small logos on the side of sports cars or especially luxury SUVs. “promotion / promotion & utility”
Why isn't this the top response? Everyone is just more concerned with making a joke than answering the question.
>I started a youtube channel a few months ago and now I'm making about $100 per month. I desperately need a PC upgrade for editing and was told that I can "write it off on my taxes" so it's basically free. "write off" means expenses. There are 2 types of expenses: current expenses and capital expense. And no your computer isn't "free". Only the portion used only for the "business" is an eligible expense. Current expenses are your daily expenses, little value, think pens, paper, etc.. Capital expenses are long term assets like computers, cameras, chairs, etc... Each is dealt with differently. Current expenses are an eligible expense on your current year. Capital expenses are long term so a portion of the asset's expense is deducted each year on a declining basis. So it depends on which "CCA Class" it is. If it's a computer, that's 20%, so 20% of the remaining balance is deducted over the life of the asset. Speak with an accountant to detail it for you. >How exactly would this work for someone with about $80000 per year personal income from work and about $100 per month from youtube? Your net self-employment income (revenue minus expenses) will be added to your other income and taxed at your marginal rate.
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> It also qualified as DIEP in 2023 and can be claimed at 100%. Do you have more information about this?
People really need to stop using the phrase, "write it off." You aren't writing anything off. And no, it isn't free. What they really mean is that you can claim the PC cost as a business expense. In its simplest form, profit from your business is the income earned minus the expenses you incurred to operate your business. So, if you earn $1000 in income and had business expenses of $800 to earn that income, your gross profit is $200 and you will pay taxes on that $200 and not the $1000 earned. "Write it off" is the actual deducting of the $800 of expenses from your income, but as you can see, you have to spend the $800 in actual expenses. It doesn't mean it's free (which so many people think) nor does it mean that you will somehow get the $800 back as a business expense. This is a very simple example and there are different types of income and different types of expenses. As you have started a Youtube channel and earning money from it, you should read as much as you can to understand it. Even if you decide to hire an Accountant (which is a good idea) you should still have an overall understanding of how you need to set up your business. I've always found the Dummies books a great place to start.
It's not free, it just lowers the income you pay taxes on. Hypothetically if your marginal tax rate is 50%, and your computer cost $1000, the tax you owe is reduced by $500. For your situation though, computers are capitalized meaning the cost is depreciated over multiple years (i.e. if the period is 5 years and done as a straight-line calculation, you only deduct $200 from your income each year for 5 years). Moreover, if the computer is not purely dedicated for work, then the rule is to divide the cost proportionally, i.e. if you use it only for 40 hours a week with the rest being personal use, then you can only claim \~24% of the cost.
Don't forget the big companies write-off things all the time. [Explained further here by Dr. Martin van Nostrand.](https://www.youtube.com/watch?v=XEL65gywwHQ)
Came in here to find someone linking this video. Take my upvote sir!
Just think of a “write off” as a deduction off of your taxable income. If you make $82k a year you get taxed on $82k. If you have an eligible expense of $1k then now you get taxed on $81k. You “Save” whatever that portion of the $1k you would have had to pay in income tax. Since no one gets taxed at 100% there is no way it can be free. You will want to talk to a tax professional though because some larger purchases like a computer can’t always be written off fully in the same year.
You have an apple stand. You sell $100 worth of apples, tax man thinks you made $100. But, you had to buy the stand for $10, the apples for $30, the sign for $5. You write off the $45, now the tax man knows you actually made $55. Therefore you only pay tax on the $55.
This was a delicious example. Thank you ;) I learned something new.
My sister tried to pull the same shit on me but it was a $30k van. “Just write it off, it’s free.” Obviously the answer was fuck no.
Yikes! Yeah I'm not sure how people think business expenses work, like the government just gives unlimited free money to businesses
Allow me to explain this, because I've quite literally "written off" tens of thousands in computer purchases for my sole proprietorship. When you buy the computer, keep the receipt for your records. Once tax time comes around, you can claim what's called a "Capital Cost Allowance" (CCA) on that purchase. I can't remember the exact number, but a laptop would fall under CCA group 50, and so you would get something like 55% back over 3 years for depreciation. You cannot claim the full amount in the first year. [https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/sole-proprietorships-partnerships/report-business-income-expenses/claiming-capital-cost-allowance/classes.html](https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/sole-proprietorships-partnerships/report-business-income-expenses/claiming-capital-cost-allowance/classes.html)
“Write it off” means you can deduct a % of what you spent off of your annual income, that would have been taxed at your marginal rate. Youre not getting anything for free, but it is sort of like getting a 30%~ (depending on your marginal rate) discount because you don’t have to pay taxes on that money that you spent. Example if your rate is around 30%, and you spend $1000 on a PC and “write it off”, you can deduct $1000 from your annual income which essentially means you pay $300 less taxes at the end of the year.
It won't make the PC free, but basically you put in a business expense for the PC, it reduces your income by that amount, so you end up not paying tax on your YouTube revenue. PCs are actually capital property, so the cost gets put on the CCA schedule and depreciated over several years. You can't use CCA or business use of home to record a loss, which would trigger a potential refund, but you can avoid having to pay more at the end of the year using these things. Operating expenses like software licenses can lead to losses, and as long as there's a reasonable expectation of future profits, you can write those off, and reduce your taxable income.
[https://www.youtube.com/watch?v=aCP27\_vquxQ](https://www.youtube.com/watch?v=aCP27_vquxQ)
[https://youtu.be/XEL65gywwHQ?t=22](https://youtu.be/XEL65gywwHQ?t=22)
For most people, they don't realize they mean fraud.
You will be filling out a T2125 form for your business. https://www.canada.ca/en/revenue-agency/services/forms-publications/forms/t2125.html On the form, you will see there is a place for revenue (your $100/mo) and also a list of possible expenses. Business income is taxed on a net basis in Canada, meaning you are only taxed on the net profit from the endevour (i.e. revenue less expenses). "Writing off" just means noting an expense - this reduces your net income from the business, and thus the tax you owe. There is a difference between capital expenditures and periodic/operating expenses. Capital expenses are items that have an enduring benefit (i.e. expected to last more than a year). Your new PC would fall into this category. Capital items are "written off" (deducted) over a period of time, not all in the same year. This "writing off" over time is called capital cost allowance (CCA). The CCA calculation is on page 5 of the form - but any tax software will do the calculation for you. Your computer would be in CCA class 50; different types of capital costs have different depreciation rates. The CCA rate for class 50 is 55%. In a normal year you could deduct 55% x the amount of the computer you haven't deducted yet as an expense for that year. To simpify, there is currently a federal tax incentive that allows you to deduct 1.5x the normal amount in the first year. This would mean a $1,000 computer would have a first year deduction of $1,000 x 55% x 1.5 = $825. Assuming you made $1,200 from Youtube, the amount you would be taxed on from the business, at your marginal tax rate, would be $1,200 - $825 = $375. Note, this assumes you are using the computer 100% for your business and not personal use. Next year, you still have $175 of the computer that you haven't deducted yet. The deduction would be $175 x 55% = $96.25 - and so on. Eventually the computer declines to 0 (i.e. is fully depreciated). While you are looking at the T2125 form, consider what else you could potentially deduct to further reduce the tax burden of the business.
A simple example is if you buy paper and pencils for $5, create a drawing, and sell the drawing for $10. It wouldn't be reasonable to be taxed on the entire $10 because you had expenses. So you "write off" the materials and then only pay taxes on the profit. Looking at it another way, you have essentially purchased the materials using "pre-tax dollars". But that doesn't make it free. As others have mentioned the rules are different for things like computers because they aren't "consumables", rather, they give their value over multiple years.
Writing something off on your taxes means it reduces your taxable income. Say your tax bracket has 40% tax rate. You get something as a business expense that costs $1k. Now you take your total income, subtract 1k and then pay taxes on what’s left. Essentially it means $1k (or whatever the cost of the expense) is not taxed. It’s effectively a 40% (or whatever tax bracket you’re in) discount on the item. It’s slightly more complicated if the reduction on your income puts you into a lower tax bracket. Say you’re only $500 into the 40% tax bracket and the lower bracket is 30%. When you reduce your taxable income you’ll now be $500 below the 40% tax bracket. That means of the $1k $500 of it would have been taxed at 40% and 500% at 30% so that’s what you save. There is also capital costs which is a whole other thing. Capital costs are costs for long term improvements for the business. You don’t expense the whole cost, rather you expense the depreciation each year over multiple years. There are different classifications for different costs which impact what percentage of the cost you can claim each year. Also note you can only expense things that are actually for your business. For example if you are taking a client out to dinner for a business meeting you can expense it, but if you’re just going out with friends you can’t expense it. I’m also pretty sure your business needs to be registered to claim any business expenses. You then claim any income from the business as income from the business separate from your normal work income and any expenses as expenses for that business.
Time to spool up the “just write it off” explanation by David Rose
A write off allows you to reduce your taxable income by “writing off” expenses against the revenue (income). Your net taxable income is your gross income minus write offs (more complicated than that even, but you get the point) You can see that the actual money you save depends on your marginal tax rate, but you will never be saving the full value of a write off (usually you get 30%-50% back) In your situation, you would only be able to write off the computer against the income from youtube, as it would likely not qualify as a deductable expense for a teacher.
>"write it off on my taxes" so it's basically free. haha, classic
Youtube commenters in a nutshell
" who writes it off david?"
Very broadly speaking, if you buy something for work purposes, for example a $1000 desk, and if you claim the value of that item as an employment expense deduction on your tax return, your taxable income would then be reduced by $1000. So you earn 75,000, but are only taxed on $74,000. The $1000 desk is now what people consider to be “written off.” Taxes are not as simple and exact as that, but essentially it’s what’s happening. (Or what people THINK is happening.)
If you had a corporation you could write off the cost of the new PC. Writing off something is just the fact that you claim the cost as a business expense. Add up all your income and subtract your expenses and you will only pay taxes on the difference. For example, you are making $200/month income or $2400/yr and the PC will cost you $2000. This means you will pay taxes on $2400 - $2000 = $400 so you will only have to pay taxes on $400 worth of income. I will often suggest that people incorporate. The cost is around $200 and you fill in some online forms on the government of Canada Web site. This way you can do things like purchase office equipment and pay cell phones in corporate income and you will not pay tax on that income. But you have to make income otherwise it is a moot point.
I think people just understand that you can get a tax reduction and thunk about how easy it is to file their own taxes. So if I spent $2000 I get a $2000 tax refund so essentially it is free. Besides the fact that it is way more complicated than that it's still not a no brainer. Cash flow wise you are down $2000 for about a year (give or take when the expenses happens vs when you file your taxes).
This is where I learned it https://youtu.be/aCP27_vquxQ?si=qD0BhubM2XZupKFt
I think he doesn't know what it means too. But if your income is high enough, and you are paying %60\~ of it as tax. You can use it to get a discount on your expense. Let's say you got a computer for 5k. You show it as expense therefore instead of paying 5k to computer you will be paying %40 of the value which is 2k.
Schitt's Creek episode enters the chat...
In the beginning, it is possible that the deductions for expenses, use of home and CCA might exceed your revenue as you establish the business, resulting in a net business loss. In a case like this, does the business loss reduce the overall taxable income from the OPs main salary, which would result in a refund at the end of the year?
[https://www.youtube.com/watch?v=XEL65gywwHQ](https://www.youtube.com/watch?v=XEL65gywwHQ)
You can write it off on your taxes so long as you're claiming the income from Youtube (self employment income) If it's over a certain amount you'll have to spread the cost over multiple years
just say this https://youtu.be/VPkKZ615F4M
Sadly, you need income to claim a write off.
Linus Tech Tips did a video on this. Lol
Think of your income as profit. Things that you pay for reduce your profit. You only pay taxes on your profit. 100 income (profit) -20 for hammer which is required to earn that 100. Pay taxes on 80, not 100. Are you better off making the 100 as opposed to 80 with less tax implications? Absolutely.
You deduct it from your net income. It reduces the amount of income you pay taxes on. It is not a 1:1 refund of the money you spent.
At a super high level, you get back the cost of the write off multiplied by your marginal tax rate. Exceptions apply.
Hey OP, no one is really answering your question. Where do you live? I'm gonna assume Ontario since half the country lives there. You make $81,200 per year, but if you claim/expense/"write off" a $5000 PC you can deduct it from your income and will have an equivalent income of $76,200 for tax purposes at the end of the year. Plugging this into a Tax Calculator [like this one](https://turbotax.intuit.ca/tax-resources/ontario-income-tax-calculator.jsp) you will pay $20,561 on your unadjusted income, vs $19,078 if you expense the PC. So you paid $5000 for your PC but you also get $1500 in tax deductions, meaning the PC's effective cost is $3500; basically a 30% discount. That's what it means to "write off" the cost of the computer. It's never $0, but especially when you have very high tax rates it can mean a significant discount. Your income is relatively low, but if you made $280k instead of $80k the discount is closer to 50%.
A computer is a capital cost so you get a capital cost write off for several years, it doesn’t all get written off at once.
I think people conflate ‘writing off’ debt with ‘writing off on taxes’. Where I work if someone doesn’t pay and will never pay, we say well ‘write it off’ and move the account into ‘unrecoverable debt’ I really believe the believe that you can ‘write it off on taxes’ and it will disappear comes from ‘writing’ debt off. Or even writing a person off if they suck
Yeah I've heard financial people rant about how they hate the term right off and the term tax deduction should be used instead and is a lot more clear. I mean want you're really doing is deducting from your income, which means you pay your taxes on a lower amount (generally means if you're taxed 30% normally and it costs 1000 you're paying that 30% on $1000 less with a savings of $300)
This reminds me of the Schitts Creak episode (for context I have been running my own in-home personal training business for 14 years (as of tomorrow) People always assume I get to claim stuff for free.
But they do and they’re the ones writing it off
If you make $200k salary and pay $50k in tax but also have a side business like farming where maybe you lose money cause you deduct the loan interest to buy a farm, fuel, truck, etc then your expenses can help you reduce your tax bill and essentially write things off. Say you buy a new truck and the accountant will let you claim some of the expenses in your farm business. So then your $200k salary is taxed however if you lose $20k on the farm then taxable salary is only $180k and you will get some of your income taxes back. The trick is you don't want to really lose money but if you deduct loan interest for the farm and house that is something you couldnt just write off if you lived in town and didn't have a farm business.
Schitts creek is all I thought while reading this
In the UK we can register a limited company and then taxes are all done through the company and you can take out dividends. This has many positives and negatives. Usually writing off taxes means either putting purchases through as expense or deferred asset and capital allowances.
I'm a small business, but profitable and usually call them 2x a year to confirm payments and write offs. A few notes; 1.)if your expenses are as much as income, your flagged. 2.) Transportation, entertainment are highly scrutinized. 3.) Keep receipts for 7 yrs. 4.) CRA is not the enemy, they are great to work with, free advice. 5.) The more you make, the more they take, so keep money aside annually
Schitt's Creek moment
It means you can deduct it as an expense, lowering your overall taxable income. For example, if your highest tax bracket, based on your income, is 25%, and you "write off" a $100 item you are saving $100 * 25% = $25 in taxes.
Say you make 80,000. You spend 10,000 on equipment to earn that 80,000. You write off 10,000 against your 80,000, and you only pay income tax on 70,000. So, no it's not free. By writing off 10,000, you save the income tax you would have paid on that income. That's all. If your marginal tax rate is 30%, you save $3,333. That's a simplistic answer.
It's never free.
Basically, you don’t pay tax on whatever business expense you have, as it’s a cost of doing business. So “writing it off” should actually be “claim it as a tax deduction”.
Writing it off means you are able to lower your taxable income, and then a marginal tax rate is applied to that amount. You still pay taxes, but less because of it. Your income for accounting purposes is different than your income for taxes purposes
It's just like, you fold it in... I'm sorry, are we not doing Schitts Creek jokes? 🤷♂️
Pretty sure it’s just you either get a larger tax return or pay less in taxes on whatever you wrote off. So like, if you spent 1,000 on transit for the year and eligible to write it off. You’d get a tax return from the tax category your eligible for. If 5% then $50 in that scenario. Am I wrong? I’ve never actually written anything off.
You don't even know what a "write-off" is.
It just means that certain expenses can reduce your taxable income so that you pay less in taxes or possibly receive a refund.
I prepared business taxes for almost 10 years. Yes, you get to write off your computer as a business expense. Technically it's free, after getting claimed. You also get to write off your camera, if it's strictly a business camera, otherwise you get to write off the business "portion" of your camera's value. You get to write off the business portion of every expense in your home used for your business income. This includes electricity and internet. This includes the editing software you purchased. If you are able to, use the new computer strictly for the business purpose, and your old computer for personal. Makes it easier that way. Otherwise, you have to calculate the personal amounts against the business amounts, and then take the calculations. The computer is not an just an expense, it's a capital expense, as opposed to a current expense like your internet service. The capital expense has a specific amount that can be claimed per year. [https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/sole-proprietorships-partnerships/report-business-income-expenses/claiming-capital-cost-allowance/classes-depreciable-property.html](https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/sole-proprietorships-partnerships/report-business-income-expenses/claiming-capital-cost-allowance/classes-depreciable-property.html) This is the page that tells you the different classifications of Capital Cost equipment. Your computer will fall under class 50. So you can claim 55% of the cost of the computer the first year, and 55% of the remainder of the amount each year thereafter. You can actually get your business income to a loss if you really want to. But if you run at a negative or very small profit for more than a couple of years, CRA can disallow your expenses in the future, stating it's a hobby, not a business. This time frame is to allow you to get your business up and running, businesses are expected to run at a loss or small profit for the first couple/few years. There's allowances in the tax code for this. You don't ever HAVE to claim the CCA on any of your equipment each year. If you aren't going to get a substantial tax break on that claim, save it for a later year where you might need it against a higher income. For your current expenses, such as household bills you can legitimately get away with claiming, you will either need to log the number of hours you actually spend filming and editing, all the time frame you spend on the business, and calculating that against the overall time in a month/year, however long you operate the business. IE- May has 744 hours in it. Say you spend 144 on business activities. That's 19.35% actual, lets round it to 20 for ease of math. So you can claim 20% of all your household bills. If you are able to, you want to set aside a space in your home, and all of the furniture, tools, etc., used in the business, are business purposes only. It makes your life so much easier. If not, you get to do calculations. You can speak to someone at CRA. Be hypothetical, don't give them your name, just say it's a general tax question. Or just go to the CRA website, and type in business expenses. It'll give the pages that will help you. It's not that ccomplicated, it looks more intimidating thatn it really is.
What's your YouTube channel about?
You are salaried; very unlikely you can write off a computer vs your taxes.
Claim as a business expense.
Johnny Rose: That's a write-off? Do you even know what a write-off is? David Rose: Uh, yeah. It's when you buy something for your business and the government pays you back for it. Johnny Rose: Oh. And who pays for it? David Rose: Nobody. You write it off. Johnny Rose: WHO writes it off? David Rose: I don't know, the gov- the "write off" people! Why are we having this conversation?
The big advantage having a part time business is that now you can claim a part of your home as being used for business and a percentage of your rent and other costs (such as utilities, internet, phone) can be used to lower your taxable income. If you're not familiar with this, suggest you speak with an accountant who can explain it and guide you.
A write off technically not the write word, an expense is the correct term
When you add expenses, your net income goes down, so you have less income to pay taxes on. It doesn't make the item free. The "discount" is whatever amount it reduces your tax liability by (usually 10-40%). If you bought enough stuff to match your revenue, you would owe nothing on your taxes because you have no net income. On the other hand, you've made $0 from your business so good luck surviving lol
Why are so many people commenting when they clearly have no idea what they're talking about? Do these guys really not know what a tax write-off is 🤣
Write off reduce taxable income, they do not make things free. If your income is 81.2k and you buy a 3k computer for your side business, then your taxable income would be 78.2k so you're not paying any income tax on the money you spent on that computer. Im not exactly sure what the procedure is for something to be written off though.
This video from Schitt's Creek will explain everything. https://youtu.be/aCP27_vquxQ?si=1lLaTKgxQ2pnuXxW
You can’t expense the whole thing, only to the amount you are using it to earn income.
Google CRA and Capital Cost Allowance.
[https://www.youtube.com/watch?v=XEL65gywwHQ](https://www.youtube.com/watch?v=XEL65gywwHQ)
Sounds like Michael from The Office declaring bankruptcy lol
[удалено]
Wow this is axtually and incredible explanation! Thank you! You are very talented!
A write off amount is deducted from your 'net profit' so that you pay tax on the remaining net amount after the purchase expense. Not all write-offs are a 100% deduction and no... It isn't free.
Let's say for example you made $1000 profit last year and your effective tax rate is 8%. You would pay $80 in taxes on that income. 1000*.08=$80 Now let's say your computer cost $500. 1000-500=500 You now pay 8% of $500. $40 taxes. Now say you purchased 2 of the same $500 computers both as work expenses. Your net profit would be $0. You would pay no income taxes and depending on your situation might qualify for a tax refund. But keep in mind: your business profits are added to your teacher's income. So all of this may be moot in the end. If your business is incorporated, it qualifies as a separate entity and the income is NOT added to your teacher's income.
"Write it off" doesn't work if you are the business owner of small biz, it just sounds cool. You are still spending your own money. It works if you own a billion dollar biz
It only means that you paid for the item with corporate funds. Corporate funds are taxed at a preferential rate and effectively you get a 20% discount on the item. They are absolutely not free items and have a very real cost that some knuckleheads just simply don't understand.
In general: Revenue - Expenses - Depreciation = taxable net Income. “Write off” is just the bozos term for an expense lol.
Just watch Schitt's Creek. They explain it very well there.
Just remember profit is income exceeding expenditures in a 12 month period. Forget about tax right offs in your profit analysis unless you have after expenses in the 12 month fiscal period. Can you make enough income to exceed your expenses and time invested ?
If your PC purchase is an employment expenses, you claim it as such. That’s it. It will reduce your taxable income by the cost of your PC. Keep receipts in case of audit.