Are you a small business in Canada? Or are you passionate about some ideas that you want to implement into your small business, but before you launch your breakthrough product or service, you might want to undertake some tax planning? If you are a Canadian entrepreneur, it is wise to draft a tax planning strategy before starting your business.
The benefits of tax planning are that the taxpayer can use these strategies to avail tax exemptions and benefits, reduce their liability, and pay deducted taxes. Often small businesses hire a tax accountant business accountant to draft the tax plan. Many techniques are commonly used by small businesses. Corporate tax accountants can provide professional advice on which ones should be used; some of these techniques include; income splitting, private pension plan, retirement saving plan, etc.
Here is a list of top corporate tax accountant-recommended planning techniques; these are the tips recommended by Toronto accounting firms.
Always collect receipts
If you wish to avail tax reductions, it is suggested by businesses accountants that you must always collect receipts for any business-related activities. This will help you reduce your tax burden; tax accountants suggest that any activity undertaken relating to the business must be documented via receipts. This is especially important for small businesses because small expenses here and there add up to be massive.
You can claim tax reductions on these small expenses, and in case you are asked to provide evidence by the CRA, you can present these original receipts.
Working from home tax deductions
Many Canadian start-ups or new businesses operate their business from home. It saves them major costs and has other benefits too. One major advantage of operating a business from home is claiming tax deductions. According to corporate tax accountants, if your office is home-based exclusively or you use your home as an office 50% of the time, you can claim home expenses.
Pay your family but be wise
Small businesses often have payouts to family members; this is called a remuneration strategy. But when making these arrangements, you must make sure that you have a real mix of salaries and dividends for your family members. You must consider individual marginal tax rates and corporate tax benefits and deferrals.
We must remember that these new rules do not apply to wages given to work performed. If you can provide all this information, the family member receiving a salary will not have a taxed income for a whole year.
Capital cost allowance
If the expenses of your business exceed the income of your business. In other words, if your business has a non-capital loss at any time or any year, you must figure out which year, and you may be able to use this loss to decrease your income tax bill. With the help of a corporate tax accountant who has relevant experience working with small-scale businesses, Toronto accounting firms can be helpful in this aspect.
Frequently asked questions
How much should I pay my family members out of my business?
If your spouse or children work for you, you can pay them a salary, but the salary must be realistic and in line with the work performed. A rule of thumb often followed is that you must pay them what you will pay a third-party employee; furthermore, you must also ensure that you document their wages and keep adequate evidence.
Can I distribute non-capital loss over the number of years?
You can decide whether it makes sense to use non-capital loss in the current tax year or to use this non-income loss to recover income tax that has already been paid by you last year, or you may carry this forward to a bigger tax bill. Non-capital losses are often used to offset personal income, and it is possible to carry it back Three years or move forward to 20 years.
What kind of tasks can be outsourced by small businesses?
Small businesses often find it difficult to keep up with day-to-day expenses and their bookkeeping, and many prefer to outsource this task to Toronto accounting firms. Small business expenses include: coffee for the office, posting a letter, buying stationery, and parking fees for work-related commutes. These are all expenses you need to document and keep receipts for, it does seem difficult, but it can be a major source of help to you and your business in the long run.
Are there any rules or restrictions for splitting income amongst family members?
The tax on split income rules makes it difficult to split income with family members. There are restrictions on private corporations. This is done by applying a high tax rate to incomes such as dividends and salaries paid through private corporations. So when this rule is applied, it reduces the benefits of income splitting. It is difficult to completely get to grips with the rules of the TOSI so; therefore, so it is suggested that small businesses work with a designated Toronto accounting firm so they can help you create a thorough strategy.
What kind of expenses can become tax-deductible when working from my home office?
A portion of your home expenses directly in correlation with the business can be claimed for; if your office is spread over 10%, you can claim deductions on expenses such as 10% of your rent or 10% on the utility bills. Here is a list of expenses you can claim a deduction on:
- Telephone bill
- Repair and maintenance
- Property tax
- Equipment for the office
- Mobile devices
- Internet access
- Utility bills
If you need more assistance, contact a Toronto accounting firm that can help you file your taxes and advise you on ways that small businesses in Canada can plan taxes to minimize their small business costs.