Poor tax management can be a huge detriment to small business owners, so make sure you're prepared for the end of the tax year.
Tax time is a period where people and companies alike try to squeeze every deduction possible out of their payments. There are a number of little-known deductions that Canadian small business owners can take advantage of in order to save money.
For those who would like to learn more about how to cut cost come tax time, read the advice below:
1. Don't Miss Out On Tax Credits
According to The Globe and Mail, experts say that often times small business owners miss out on tax credits.
There are a number of different tax credits available, such as one provided for apprenticeship training, which can cover up to $10,000 worth of wages provided to an apprentice.
Also available are research and development credits. If your small business is involved in manufacturing or technology, then it might be eligible for either federal or provincial scientific research and experimental development tax credits.
2. Remember To Keep Organized Records
Every small business owner should make sure that he or she keeps organized records, TaxTips.ca recommended.
Any bookkeeping or records should be accompanied by source documents. These files include invoices for purchases and sales, deposit slips, checks and contracts, and are used in order to prepare businesses' financial statements.
For income tax, these documents must be kept for a minimum of 6 years after the end of the last tax year they're related to. Make sure that your business is keeping records on hand, and organized, in order to keep taxes simple.
3. Keep Personal And Business Finances Apart
As long as it is possible to do so, keep your personal life and your business life separate, The Globe and Mail suggested.
For example, don't use your personal credit card for business purchases, and don't take money out of a business banking account to purchase a family computer. Keep it all apart.
This will make managing your finances easier, and will also allow you to take advantage of more tax breaks. An example is credit card interest.
When it is accrued on business purchases it is tax deductible, however credit card interest on personal items is not.
4. Writing Off Expenses Against Business Income
In Canada, expenditures made while trying to earn business or property income are typically tax deductible, TaxTips.ca explained. Many of these purchases will be fully deductible by the end of the year, however some will not.
For example, capital costs - such as land, buildings, vehicles, machinery and equipment, computers - are not fully deductible in the year that they are purchased. These items will be recorded on your balance sheet as assets, and partially deducted each year.
In addition, inventory can't be immediately written off. It is counted on your balance sheet simply as inventory, and can be deducted once sold.
For more information on how to make handling your finances easy this year, speak with an accounting and tax services expert at FBC.