Each year, many Canadian small business owners may be looking for ways to reduce the tax liability on the personal income they take from their companies, but this isn't always easy to do.
However, experts will generally be able to recommend a number of tips that will allow you to qualify for tax credits and deductions you may not know about, as well as generally prepare to get your filings handled as quickly and easily as possible.
While this isn't always easy to do, it can be quite important, because the end result will often be significant savings that greatly reduce liabilities and, long-term stress.
Where to Begin?
The big thing that small business owners - including farm owners and truck owner operators - need to keep in mind when trying to get their annual tax filings together is that those who start earliest will typically have the most success when it comes to proper preparation.
For instance, many owners probably know all too well the stress that can often come with putting tax prep off until the last minute.
For those who can start their tax work as early as possible - meaning January or February - they're effectively giving themselves lots of time to work on whatever issues they might need to address.
For example, if you can make sure you're doing all in your power to at least get the groundwork laid in this regard before the end of the tax year or early in the new year, you're probably going to be able to identify areas where you might be able to shift things around to give you more of an advantage.
If done before the end of the year you could delay some income into the next year, or make an equipment purchase for the company that could be used to give you a greater chance to save a little bit of money before.
As a general rule of thumb, the earlier business owners can start their work here, especially with the help of a tax professional, the greater their chance for success is going to be.
Giving Can Help
As many Canadians likely know, there are also significant tax benefits for people making even relatively small charitable donations over the course of the tax year.
This highlights another benefit of tax planning early, because entrepreneurs may be able to identify ways in which a charitable donation can reduce their liabilities significantly before the end of the year.
Those who are able to position themselves wisely in this regard are far more likely to find success when it comes to cutting down those liabilities overall, because it gives them the chance to both help out a good cause that's important to them while also reducing their own tax liabilities.
And in fact, those who have never made a charitable donation may be able to get an even greater benefit in certain instances, but that's something else they may need to talk about with their tax preparer to fully understand.
However, when it comes to this kind of giving, it's important to log all expenditures carefully, and make sure to have receipts or other evidence to back up claims being made in this regard.
Finding Ways To Save
Beyond using the extra time to strategize or spread out the work over the course of a few hours per week for a handful of months to reduce stress, or giving to charitable organizations, there are other ways that owners can probably put themselves in a better position.
One of the advantages of early prep work is that you'll have more time to familiarize yourself with all the available tax credits and benefits for which you may be able to qualify for based on your specific situation.
For example, the federal government provides a lot of tax advantages to Canadians with kids, including credits for those who have to pay for childcare, parents who are paying for their kids' college tuition, and so on.
However, you may not do enough to qualify for the credits, so speaking with a tax professional can go a long way toward helping to determine what you can do - or need to do - to qualify.
This kind of tax advantage may also be applicable to people who sought certain types of health care and paid for it out of pocket.
There are many medical expenses that consumers may not know they can claim - and therefore deduct to a certain extent - to reduce tax liabilities, but as with the child-related tax benefits, you might need to do a little bit of legwork to determine what actually qualifies, and how valuable it will be to you.
Here, too, having the proof of these kinds of expenses being paid will be critical for Canadians who are hoping to get these benefits applied to their tax bills at the end of the year.
What Else Can You Do?
As has been mentioned above, it's not always easy for the average Canadian to fully understand all the ways to reduce their tax liabilities and increase their benefits.
Tax law is often quite tricky to understand and takes a lot of work to fully figure out, even for those with an extensive background in the field.
For this reason, having an experienced tax professional to lean on can be extremely valuable throughout the year.
But for owners who work for themselves and take a salary from companies they own, this may be particularly important, because there are many ins and outs of tax law where this kind of entrepreneurship is concerned that they simply cannot be expected to know about - especially because they need to spend so much time making sure their companies are running as smoothly as possible.
Why Working With a Tax Pro Can Be Crucial
Indeed, when it comes to making sure you're in the best tax filing position, the fact of the matter is that a tax professional familiar in your field is going to be the most effective tool available.
Again, they're simply going to be able to know the ins and outs of the tax laws that could apply to your unique situation, but working with a long-time specialist who has experience in dealing with workers in your specific industry could save you thousands of dollars.
This is also true because tax pros shouldn't just be relied upon for help during the final few months before the filing deadline, but throughout the year, because it will help business owners to plan out and nail down all the steps to take throughout the year to make sure you're as well-positioned as possible for when tax season finally rolls around.
Along similar lines, these experienced tax specialists may also be able to help you deal with any potential issues that crop up over the course of the year, such as unexpected expenses, surprise income, or other things that could end up significantly impacting your tax liabilities.
Why Should You Do It?
After all, the whole idea behind tax planning is to reduce liabilities and make sure to take advantage of as many credits as possible, with the practical upshot of all that prep work being that taxpayers end up owing far less than they might have thought.
And it's important to remember here, too, that the more this work can be spread out for small business owners, the better off both you and your company are likely to be in the long-term.
That's because owners who know what they "should be" doing to position themselves for a successful tax season will therefore spend less time stressed about the possibilities, and also spread the number of hours they're working on these issues out over a longer period of time.
For instance, if it takes 50 hours to do all the tax prep work for both your business and yourself, you have the option of cramming all that work into a few weeks ahead of the deadline, or spacing it out over a few hours per week across a few months.
That's often going to be the difference for owners between a stressed-out and often mistake-filled filing versus one that can be taken at a pleasant and manageable pace, which can therefore help to spot potential issues long before they arise, and better prepare both business and business owner alike for any last-minute issues as they arise.
Contact FBC now to get started on your 2015 taxes while there's plenty of time to optimize it so you pay the least amount of tax this year and in future years.