The end of the year is fast approaching, and in addition to the regular stresses of the holiday season, there is pressure to manage your small business, prepare your taxes, and ensure you are taking advantage of all the small-business tax deductions you can.
To help make year-end tax planning less stressful and boost your company’s bottom line, consider the following 7 tax tips.
1. Organize Your Files
For many reasons, most people procrastinate when it comes to preparing their taxes. Fortunately, it’s never too late to start locating and organizing receipts, bills, expenses, and bank statements.
Doing so might even show you that some customers and clients are behind in making payments. Ultimately, organizing your files is important because it helps determine what your expected revenues and profits are going to be for the fiscal year.
Getting a handle on that can help you make more informed business and financial decisions that will benefit your bottom line.
2. Home Office Expenses
There are a lot of tax advantages to being a small business owner and working from home. If you do work from home, you can deduct a large portion of your home office expenses.
Some of these deductions include:
- Office expenses
- Cleaning materials
- Property taxes
- House insurance
- Mortgage interest
- Repair and maintenance
- Office equipment
- Furniture etc.
Before you can deduce these home office expenses, there are some rules that need to be followed: The workspace must be where you conduct the majority of your business (more than 50% of the time) and the workspace needs to be used exclusively for the business and on a regular basis.
When it comes to taxes, home office expenses can only be deducted from any business carried out in the home. They cannot be used to create a business loss. That said, any portion of deductible expenses that cannot be used in the current taxation year can be carried forward.
3. Hire Family Members
Employee wages are a business expense. Hiring a spouse, partner, or child will allow you to reduce the businesses taxable income and could reduce your family’s combined tax bill, since they will likely pay tax at a lower marginal tax rate.
4. Income Splitting
Income splitting is when you split income, or dividends, from one family member to another family member that is in a lower tax bracket, significantly reducing your taxable income.
In the summer of 2017, the Canada Revenue Agency introduced new income splitting rules; while the changes have made the process more complex and confusing, the benefits still outweigh any potential headaches.
For starters, to take advantage of income splitting, they actually have to be performing work and that the work they do is meaningful enough to justify the income. That means having the paperwork to support their employment.
Dividend sprinkling is another way to take advantage of income splitting. You can do this by restructuring the company shares. To do this, you need to give different classes of non-voting shares to family members, with the intention of paying dividends to those members in the lowest tax bracket.
The end result, the company’s income is taxed at the lowest possible tax rate.
5. Capital Asset Purchases
Timing capital asset purchases can save you a lot of money come tax time. A capital asset is property that is expected to help the business make money over a long period of time.
Examples of capital assets include buildings, computer equipment, vehicles, and machines.
High value items are considered to be capital assets, but they cannot be fully deducted in one year. Instead, capital assets depreciate and are subject to the “half-year rule.” That means a business can only claim half of the annual depreciation in the year of the acquisition.
If you’re thinking of making a major capital asset purchase for your small business, do it as close to the end of the fiscal year as possible. That way, you can take advantage of the write-off much sooner. If you delay making the purchase until the New Year, the business will have to wait a full year before using the maximum depreciation rate.
6. Installment Payments
It’s not uncommon for small business owners to ignore installment payment notices. The end result is getting hit with large interest payments. This can be easily avoided if you make quarterly installments for GST/HST/QST, corporate tax, and personal income taxes.
7. Declare Year-End Bonus
If your small business has enough money, declaring bonuses is a great way to reduce year end profits and taxable income.
If you declare a bonus in the current fiscal year but not pay it until the next fiscal year (within six months) the business benefits right away from the tax deduction while the employee only needs to declare the bonus in the following year.
FBC – Where Small Business Owners Turn to Reduce Their Tax Burden
FBC is where Canadian small business owners turn for tax planning strategies and advice on how to maximize their deductions and minimize their tax burden.
Since 1952, FBC has worked exclusively with small business owners, farm operators, and independent contractors. For more than 65 years, we have helped tens of thousands of customers from B.C. to Nova Scotia prepare and file their taxes.
At FBC, we also understand there is no one-size fits-all approach to tax planning. That’s why we’re the only firm in Canada that offers integrated tax services on a year-round Membership basis.
For a fixed fee, Members get year-round access to our tax planning, tax preparation, consultation, bookkeeping, and financial planning services. FBC also provides all new Members with a review of their previous three years’ tax returns.
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.
Through implementing a year-round approach to your tax planning,
you’ll be able to hold on to more of your wealth.