Last updated: Nov. 15, 2018
Money Saving Tax Tips for Small Business Owners
The idea of paying taxes every year, especially more than you need to, can be depressing. While you can’t sidestep income tax, you can take advantage of a number of small business tax strategies to help reduce the amount of income tax you pay.
Below is a list of ways you can reduce your tax burden if you operate a small business in Canada.
Take Advantage of Small Business Income Tax Deductions
A lot of small business owners operate out of their homes. If you do happen to run a home-based business, you’ll want to deduct all of the relevant home-business expenses you can.
Keep in mind, not all small businesses qualify for home-based income tax deductions.
For example, you can claim business-use-of-home deductions if the home is where you conduct the majority of your business, or use the space to meet with clients. This means you can’t claim business-use-of-home expenses if you happen to conduct business elsewhere or only conduct a small amount of business at home.
For those small business owners that do qualify, you can deduct a portion of home-based small business expenses, including heat and utilities, home maintenance and repairs, home insurance, vehicle, and business travel.
If you own your home, you can deduct a portion of your property tax and mortgage interest as well.
The more you make the more you need to pay in taxes. One of the best ways to reduce your income is through income splitting.
This allows you to split some of your small business income with a spouse, partner, or child (or any family member with a lower income) who is actively working in the business.
You’ll end up lowering your income and be able to take advantage of a lower tax rate.
Maximize RRSP Contributions
Deductible RRSP contributions can help reduce your tax burden.
First, you receive a tax deduction for your RRSP contributions.
Second, the money in your RRSP grows tax-free, that is, until you start to withdrawal from the plan; but by then, your tax bracket will most likely be lower than it is today.
Take Advantage of Tax Credits
Small business owners, and all Canadian taxpayers, can claim a basic non-refundable tax credit for their income tax, which can be used to help reduce federal and provincial/territorial taxes. The personal amount changes annually and factors in inflation and other factors.
The non-refundable tax credit can be used to reduce payable taxes to zero, it cannot be carried forward. That said, there are some exemptions.
Donations to registered Canadian charities can earn you a tax credit. But non-registered Canadian charities and American charities do not qualify.
If you forgot to claim a charitable donation or found a receipt after the tax deadline, you can claim a receipt going back five years. What this also means is you do not need to claim all of the charitable donations you made this year.
Some unclaimed medical expenses can be claimed in the next year. And unclaimed tuition, education, and textbooks can be carried forward or transferred to someone else.
FBC, Helping Businesses with Family Business Taxes
When it comes to reducing the amount of income tax you pay to the Canada Revenue Agency, most Canadian small business owners would benefit from having the tax professionals at FBC handle their taxes.
Why should small business owners trust FBC when it comes to preparing taxes? Since 1952, FBC has worked exclusively with small business owners, farm operators, and contractors.
For more information on FBC and the services we offer, 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.