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Last updated: Dec. 14, 2018
When it comes to small businesses, Canada is very entrepreneurial. According to the most recent data from the Government of Canada, 1.14 million, or 97%, of all enterprises are classified as small businesses.
Despite the varied number of small businesses in Canada, there is one thing that all small business owners have in common: the need for good tax-saving strategies.
Below are 5 tax -saving strategies to help small business owners deal more effectively with their inevitable income tax returns.
1.Good Recordkeeping
One of the best and seemingly overlooked ways for Canadian small business owners to save money come tax time is to start saving every single receipt at the start of each tax year.
The letters you mailed throughout the year, parking fees to meet a client, or the bag of coffee for the office—it all adds up.
Filing receipts can help find deductions that might otherwise have been forgotten.
2.Income Splitting
In Canada, small business owners and all income earners are placed in income tax brackets. The higher the income is, the higher the tax rate.
To help alleviate the tax burden of earning more money, a high income earner can split their income with members of the family.
Income splitting can reduce the overall personal tax bill and save small business owners thousands of dollars as income is moved from someone in a higher tax bracket to someone (child or spouse) in a lower tax bracket.
3.Home Office Expenses
If you operate your small business from home, you may be able to deduct a portion of your small business expenses, including:
- Utilities
- Insurance
- Rent
- Property taxes
- Cleaning supplies
But to make these claims you need to make sure you are following some basic but essential rules.
- The workspace must be the principal place where you conduct business; this means more than 50% of the time.
- The workplace must be used to earn business income and used on a regular basis for meeting clients, customers, or patients.
Further, home office expenses can only be deducted from any business that is carried on in the home. It also cannot be used to create a business loss.
4.Capital Cost Allowance Claim
To operate their business, many small business owners purchase items that depreciate in value, this could include furniture, office equipment, or even a building.
While you cannot deduct the full cost of the depreciable item when you calculate your professional income, you can deduct the cost over a period of several years. Different assets are also deducted at different rates.
What some small business owners may not know is that they don’t have to claim the Capital Cost Allowance in the year that it occurs, any unused portion can be carried forward to help offset a largest income tax bill in the future.
Major purchases can have a major impact on your Capital Cost Allowance Claim.
5.Know the Limits of Using Tax Software or Online Tax-Filing Programs
The Internet has made it a lot easier to conduct business. It also creates short cuts that can often cost small business owners a lot of money.
Tax software and online tax-filing programs are great for students or those with medical expenses; they’re prompted with relevant questions and make sure you apply for relevant credits.
But if you own a small business with a more complicated tax filing life, completing your taxes yourself with an online tax-filing program probably won’t fit the bill.
FBC, Helping Small Business Owners with Their Taxes
The end of fiscal is just around the corner. That means tax filing season is close behind.
Tax season can be challenging for small business owners in Canada with most focused on day-to-day operations. But, with advice from the tax experts at FBC, you can maximize the tax savings and avoid any pitfalls.
For more information on how an FBC tax consultant can help your small business prepare and file your annual income taxes, call us today at 1-800-265-1002 or submit an online form and an FBC tax specialist will contact you at your earliest convenience.
Connect with your Local Tax Consultant to learn more
