In the first installment of our "15 Tax Tips for 2016," the focus was mainly on what things you and your small business can do right now to improve your tax status in the new year, such as by taking advantage of seminars that are being offered and staying on top of tax law changes.
The next 5 small business tax tips are recommendations of things that you should do over the next several months to reduce the taxes you pay.
6. Don't Make Assumptions
As the days turn into weeks and weeks into months, you're likely to purchase a number of items for your farm or small business, be them large or small. In doing so, you may buy on the assumption that you'll be able to write it off as a business expense, thus lowering your tax obligation.
But it's important not to assume that everything you buy will be tax deductible. Tax laws are always changing, so something that may have been deductible last year may not be in 2016.
In short, if you're making a major purchase, consult with your FBC tax professional so you can determine what's deductible and what isn't.
7. Beware of Scams
"The CRA NEVER requests passport or health insurance information."
It's a sad state of affairs that people try to take advantage of others, but that's unfortunately a fact of life.
The Canada Revenue Agency reminds both individuals and businesses to be wary of telephone calls and email that purport to be the CRA, asking for social insurance numbers, bank account numbers or other personal and financial information.
These correspondences claim to be the CRA, but requesting this type of personal information is, in itself, a red flag. When in doubt, ask yourself some common sense questions, like whether the claim is too good to be true, if the information being requested is unusual and if there is a legitimate reason for the email or phone call.
The CRA has more information on scams, but you can talk to an FBC tax specialist as well.
8. Consider Donating to Charity
Charitable donations are one of the most selfless gestures a person or business can make. But if there are tax deductions that can be taken advantage of, this further incentivizes donating generously to a worthy cause.
The Government of Canada in 2013 introduced the first-time donor super credit, which increased the value of charitable donation tax credits by 25% and a one-time 40% federal tax credit for monetary donations of $200 or less. Though this is something that's exclusively for individuals, there are tax benefits for businesses as well. Your FBC tax specialist can fill you in.
That extra bonus money you plan on giving to your hard-working employees can increase tax liabilities.
9. Be Mindful of Bonuses Affecting Tax Liability
Your employees will acknowledge that there's never a bad time to give them a bonus for all the hard work they've done.
Traditionally, though, bonuses are handed out at the end of the year as a way to say thank you for their efforts. Be careful that you don't wind up increasing your tax obligation as a result.
For example, if you increase their pay during a pay period, that's considered taxable income that must be substantiated when it's time to file, meaning payroll taxes are affected. Instead, you may want to hand out gift certificates, which are non-taxable in certain circumstances.
10. Avoid an Audit by Being More Vigilant
Few things are more unsettling than being audited by the government.
Unfortunately, declining revenues have led to more audit enforcement actions, often leaving businesses with thousands of dollars less than they'd anticipated.
You can avoid being affected by an audit by always tracking your expenses, double-checking your records to ensure they correspond to one another and using an organized storage system that allows you to call up records with ease.