As a Canadian small business owner, you should consider a list of tax strategies and reduce your income tax bill. While many small businesses don’t pay due attention to processes and procedures that lead to a reduced tax bill, you can start working right now to considerably reduce the amount you’re going to pay in taxes next year. What strategies you should consider depends on your unique financial situation and priorities.
Whether you have business partners or you’re a sole proprietor, it’s always recommended to consult a reputable financial advisor to have your tax situation thoroughly evaluated. A professional financial expert will help you develop an efficient tax strategy for your small business. The following are some of the common small business tax strategies that you might implement to optimize your wealth:
Keep receipts of business-related transactions
We understand that running a business, whether small or large, is a busy job and many don’t have time to keep receipts for everything. For example, keeping receipts for the bag of coffee you picked for the office or a receipt of money you spend on sending out some business letters are little things that most business owners overlook. However, if you want to reduce your taxes, you have to be more organized and efficient in terms of record keeping.
Little things can create a big difference at the end of a tax year. You can maximize your tax deductions by organizing receipts for whatever you purchase or spend on business-related affairs. Since Canada Revenue Agency (CRA) doesn’t usually accept credit card statements, make sure to keep original receipts whenever you make a transaction.
Manage your RRSP and TFSA contributions
Tax Free Savings Accounts (TFSA) and Registered Retirement Savings Plan (RRSP) are more than savings accounts. You can use them as tax-saving strategies, especially if you’re a business partner or sole proprietor. Your marginal tax rate plays a key role when it comes to saving tax from an RRSP contribution.
Your tax situation can be more complex if your small business is structured as a corporation. If you decide to receive some or all of your income in the form of dividends, it will eliminate or reduce your RRSP contribution. So far as TFSA is concerned, it allows you to shelter your savings and investments from taxes. It’s a good idea to put cash or investment in the TFSA when you max out your RRSP contributions. Talk to a financial planner to learn more about RRSP and TFSA.
Maximize your charitable income tax credits
When you make charitable donations to registered Canadian charities, it will earn you tax credits. Charitable donations that total over $200 will provide you with more of a tax credit. So, you should consider donating to charities. However, make sure they’re registered; donating to non-registered charities and political parties will not be counted as charitable income tax deductions.
Other effective tax-saving strategies for small businesses include:
- Income splitting
- Business incorporation
- Taking advantage of income tax deductions available to home-based businesses
- Maximizing Capital Cost Allowance (CCA)
If you’re not sure how to use these strategies to reduce your tax bill, consult a financial expert.
About Kewcorp Financial
Kewcorp FInancial takes pride in helping small businesses reduce their tax burden. If you’re located in Edmonton and looking for someone professional to discuss your tax planning needs, please click here or if you require specific guidance, contact Kewcorp Financial at 780-449-6292.
Did You Know?
Tax planning provides numerous benefits to both small and large business.
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