Small business owners in Canada have endless ways of claiming tax deductions against their small business spending, cutting their tax bill for business income.
Want a bit of a tax break? Here are 5 tips:
Take Advantage of Tax Deductions
You can’t take advantage of tax deductions if you don’t know what they are. Determine what small business expenses qualify as income tax write-offs. Possible deductions can range from business management expenses to operating expenses. Here’s a quick rundown of tax deductions for small business owners in Canada:
- Business management expenses – Annual license fees, business taxes, membership dues for professional organizations, trade or commercial association fees, mail and delivery costs, online marketing fees, external professional consulting services
- Business insurance premiums – General Business Liability Insurance, Business Property Insurance, Business Interruption Insurance
- Media advertising costs – Canadian market television and radio broadcast stations, Canadian market magazines and newspapers
- Vehicle expenses – Insurance, registrations, lease payments parking, toll charges, oil, maintenance, and fuel
- Operating expenses – Rent, office space insurance, heating, and electricity, office supplies
- Capital property – Vehicles, equipment, computers, fixtures, furniture, or buildings
- Employee salaries and benefits – Canadian pension plan contributions, employment insurance premiums, Worker’s compensations amounts
Hiring Family Gives You a Tax Deduction
Speaking of employee salaries and benefits, did you know that whenever you hire someone, the cost of your employee’s wages is considered a business expense? This applies even when your new employee is your spouse or child. However, when you hire your own spouse or child, you get the chance to do some income splitting. You just might be able to drop your net income into a lower tax bracket and net an income tax deduction by employing your spouse or child in your business.
Seek Tax Credits
If Investment Tax Credits (ITCs) apply to your small business, you can apply a specified percentage to the cost of specific expenditures and property acquisitions. Examples of Canadian tax credit programs include the Research and Development (R&D) Investment Tax Credit and the Apprenticeship Tax Credit. Upon the CRA’s approval, your business may be eligible for the federal government’s Scientific Research & Experimental Development (SR&ED) refundable tax credit initiative which is worth up to 35% on eligible expenses.
Don’t be one of those business owners that fail to realize that regardless of your business fiscal year end, the due date for your personal tax return is still June 15th and any taxes owed must be paid by April 30th. Fail to meet the deadline and you’ll be slapped with costly interest on the amount owed when you eventually do file.
Maintain Complete & Accurate Records
Whether your business is profitable or owes taxes, you are required by the government to provide your business income details on your tax returns. Receipts are crucial for validating your expense deductions; therefore, complete and accurate accounting records will always be on the list when discussing taxes.
Adopting a consistent and accurate record-keeping system means committing to maintaining all your financial records, from business receipts to employee payment records, organized year-round. Review your business accounting processes and determine how to refine your income tax process to save you from the stress and frustration that often comes with being ill-prepared when tax season rolls around.
Until the next time,